By Oyintarelado Moses
On February 17, 2023, the International Monetary Fund (IMF) convened a roundtable discussion on sovereign debt restructuring, bringing together creditor and debtor stakeholders involved with ongoing and upcoming debt restructurings.
Leading up to the discussions, China emphasized that private and multilateral development bank (MDB) creditors should provide debt restructuring in ongoing debt negotiations in Sri Lanka and Zambia.
Concurrently, it appears that China has offered a concession on eligible debt for restructuring in Zambia.
According to recent statements from Zambia’s Ministry of Finance, China may include debt insured by the China Export and Credit Insurance Corporation (Sinosure) in Zambia’s debt restructuring negotiations. Sinosure’s financial guarantees and insurance agreements assure lenders that a debt will be repaid by Sinosure up to a certain amount agreed to in an insurance policy if the borrower refuses to repay the debt. Consequently, lending covered by Sinosure is considered “official” or “public,” as Sinosure is a government institution that is ultimately taking partial liability for repayment of the loan. Including Sinosure-insured debt aligns with the Paris Club’s definitions of eligible debt in debt negotiations.
In the past, China has excluded commercial loans from debt restructuring, including loans from the China Development Bank (CDB), which they view as a commercial bank. Counting Sinosure-insured debt as eligible debt would mean including loans provided by the CDB and other commercial entities if such loans were covered by Sinosure. Such a move would not only be significant for China, but it could also trigger the need for the private sector and other creditors to provide commensurate coverage.
The exact impact of including Sinosure-covered debts in the negotiations is unclear, as China’s overseas debt exposure lacks the transparency to make precise estimates of the magnitude of debt covered under such a concession. However, using a combination of internal and external data sources, we estimate that including Sinosure-backed debt in the debt restructuring negotiations for Zambia, Ethiopia, and Ghana could double the amount of unpaid loans that China would negotiate under the Common Framework.
Based on loan commitment data from the Chinese Loans to Africa (CLA) Database, managed by the Boston University Global Development Policy Center, we estimate that $8.4 billion in loan commitments to governments have been covered by Sinosure in Zambia, Ethiopia, and Ghana from 2000-2020. Of this $8.4 billion, 48 percent ($4 billion) are loans given by the Export-Import Bank of China (CHEXIM). Debt owed to CHEXIM, if not yet repaid, is already included in debt negotiations since CHEXIM is an official lender. The other 52 percent ($4.3 billion) of the commitments are commercial loans, including those from CDB. Under the concession, commercial loans covered by Sinosure would be included in debt negotiations if not yet repaid.
These amounts do not equate to debt owed, as it is likely that some of these loans have been partially paid off already. However, given the average repayment expectation year on these loan commitments is between 2030-2034, it is likely that most of the debt insured by Sinosure still needs to be repaid.
If China is willing to include Sinosure-insured debt in Zambia’s debt negotiations, it may be willing to increase the amount of eligible debt for ongoing debt relief negotiations in other countries under the G20 Common Framework.
If China expands the envelope of debt included under the Common Framework and compels its creditors to engage, the United States and European Union could put pressure on their private sector creditors and use their majority voting power at the MDBs to compel participation in debt restructuring in a way that doesn’t impact their AAA ratings or preferred creditor status.
The makings of a deal are coming together.
Oyintarelado Moses is the Data Analyst and Database Manager for the Global China Initiative at the Boston University Global Development Policy Center. Follow her on Twitter: @TarelaMoses.