Zambia, Chad, and Ethiopia Remain in Debt Crisis Limbo as of April 2024

Zambia, Chad, and Ethiopia are among the poor countries that have defaulted on their debt since 2020 due to increased spending during the COVID-19 pandemic and investor capital flight. As of April 25, 2024, these countries are still struggling to resolve their debt issues, with high borrowing costs and limited funding sources hindering their economic recoveries.

The International Monetary Fund (IMF) has emphasized the need for these countries to continue improving public finances, reducing inflation, and implementing reforms to enhance skills development, spur innovation, and promote trade integration. The IMF has provided $58 billion in financing to the region since the start of the pandemic and stands ready to provide further support. However, the burden should not be on the countries alone, and support from the international community remains essential for the region to build resilience and achieve macroeconomic stability.

African Development Bank President Akinwumi Adesina has highlighted the challenges posed by Africa's ballooning external debt, which reached $824 billion in 2021, with countries dedicating 65% of their GDP to servicing these obligations. He has called for debt transparency, accountability, and an end to opaque natural resource-backed loans that complicate debt resolution. Adesina has also emphasized the need for increased concessional financing, particularly for low-income countries, and the importance of putting in place an orderly and predictable way of dealing with Africa's debt.

The U.S. government has been working to assist African countries in reducing their debt loads, with the Global Sovereign Debt Roundtable playing a key role in bringing together creditors and debtors to tackle rising debt burdens in developing countries. Zambia and its government creditors, including China, have reached an agreement to restructure $6.3 billion in loans, announced by the French government. The deal covers loans from various countries and China, Zambia's biggest creditor at $4.1 billion. The IMF approved the deal, which will allow Zambia to receive more financing.

Why this matters: The debt crisis in Zambia, Chad, and Ethiopia highlights the broader challenges faced by developing countries in the wake of the COVID-19 pandemic. Resolving these debt issues is crucial for the economic recovery and stability of these nations, as well as for the global financial system as a whole.

The IMF has lowered its 2024 growth forecast for low-income countries, and the World Bank has reported that half of the world's 75 poorest countries are experiencing a widening income gap with the wealthiest economies. Affected countries need to increase their domestic revenues, fight inflation, and develop local capital markets to make themselves more attractive to investors. The UN should implement a new multilateral legal framework to deal with sovereign debt, taking into account climate change, environmental degradation, and human rights.

Key Takeaways

• Zambia, Chad, and Ethiopia defaulted on debt due to COVID-19 spending and capital flight.
• IMF provided $58B in financing but calls for reforms to improve public finances and trade.
• Africa's external debt reached $824B in 2021, with 65% of GDP spent on servicing.
• Zambia reached a $6.3B debt restructuring deal with creditors, including China.
• IMF lowered growth forecasts for low-income countries, highlighting need for debt solutions.