Zambia’s Finance Minister Alexander Chikwanda, has said that the assertions by some sections of the society over the last few days, creating an impression that the government had defaulted on debt obligations to Brazil, Iraq and China, should be discarded as they are not based on empirical evidence. “The correct position is that the figures being quoted in the public domain are not as a result of delinquency but on account of the special bilateral arrangements between the government of Zambia and the concerned creditors, which arrangements have been structured under what are referred to as Paris Club Agreed Minutes of 2005; the benchmark for providing debt relief under the Heavily Indebtedness Poor Countries (HIPC) Initiative,” Chikwanda, who is also acting republican president, explained Thursday.
According to Chikwanda, the special bilateral arrangements entered into with Brazil, Iraq and China, allow for suspension of debt service payments during the period of bilateral negotiations - pending signing of debt relief agreements - adding that the resultant debt payment arrears are what are referred to as ‘Technical arrears’.
In order to resolve the outstanding ‘Technical arrears’, Chikwanda said the Zambian government had been negotiating with the governments of Brazil, Iraq and China with a view to signing bilateral debt relief agreements.
“The resultant agreements will stipulate the mode of effecting debt forgiveness under the HIPC Initiative. The three bilateral creditors are the only remaining creditors that are yet to deliver their share of debt relief to Zambia under the HIPC Initiative,” the acting President stated.
He also clarified that since the Zambian government had not yet signed debt relief agreements with Brazil, Iraq and China, the eligible obligations to these countries would continue to be recorded as ‘Technical arrears’ although no actual money is expected to be paid out by the Zambia government.
“It is as a result of such arrangements that although the Zambian government is accumulating the ‘Technical arrears’, neither Brazil, Iraq nor China has been sending demand bills for debt service for settlement. Without demand bills for debt service, there can be no settlement of a debt; therefore, Zambia is not in default in any way,” said Chikwanda.
Chikwanda disclosed that the governments of Zambia and Brazil have agreed that the outstanding debt of US$ 67.1 million owed to Brazil will be treated through the special bilateral arrangement.
Under this arrangement, 80 percent will be cancelled while 20 percent will be repaid on terms of the agreement to be signed between the two parties. The debt relief agreement between Zambia and Brazil is expected to be signed in December 2014.
Zambia has also agreed with the government of Iraq to settle the outstanding debt of US$ 37 million under the Paris Club VIII debt write-off framework. Under this arrangement, Iraq will cancel 90 percent of the outstanding debt stock, while the remaining 10 percent will be repaid on terms of the agreement to be signed between the two parties.
On the debt owed to China, Chikwanda said in 2011, the government of China, through a protocol, delivered partial debt relief by cancelling the outstanding amounting of RMB Yuan 247 million which represented 50 percent of the debt forgiveness from China.
He said Zambia has commenced negotiations with China on the cancellation of the remaining 50 percent of the outstanding debt. It is expected that the negotiations will be completed by the end of this year and a debt relief agreement signed in 2015.
Total outstanding debt to China stood at US$ 19. 2 million as at the end of 2012.
Chikwanda further explained that government is on course with all external debt obligations and both external and domestic debt levels remain below the international thresholds of 40 and 25 percent, respectively.
“Looking back to the end of 2013, preliminary estimates indicate that the total debt as a percentage of GDP stood at 28%. Of this, external debt stood at US$ 3.1 billion [approximately K17 billion] or 13.7% of GDP, whilst domestic debt stood at K17.6 billion or approximately 14% of GDP.
Debt service (principal and interest payments) stood at K11 billion or 1.2% of GDP (and approximately 6% of domestic revenue). In this regard, external and domestic debt levels are below the international thresholds of 40% and 25%, respectively.”