China gives hope to emerging market debt

Zambian President Hakainde Hichilema speaks at the 76th session of the United Nations General Assembly at UN Headquarters in New York, USA on September 21, 2021. Spencer Platt/Poole via REUTERS

MUMBAI, Aug 1 (Reuters Breakingviews) – China obligation The restructuring of the $6 billion it owes Zambia is a good sign for Sri Lanka and other countries that have borrowed heavily from Beijing. In April, the People’s Republic joined the African country’s creditors’ committee. The group, which it co-chairs with France, has not yet detailed how big any cuts will be, but the initial agreement is an important step forward in creating a new model for emerging market debt relief.

Unlike Zambia, Sri Lanka has not previously been poor enough to be covered by the G20 initiative, which suspended $13 billion in debt service payments to about 50 countries due to the pandemic. This scheme became the basis for China’s change of course towards Zambia, prompting it to effectively join The Parisian Club in all but name.

Yet China will struggle to set such arbitrary boundaries around its credit losses: Sri Lanka’s $14 billion foreign bonds trade at just 28 cents, half the level of Zambia’s $3 billion paper bonds. Both by default. Both need urgent help. Zambia’s decision will pave the way for a new group of emerging market lenders, including India and Saudi Arabia, which have grown significantly over the past decade. (Una Galani)

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Editing by Robin Mak and Thomas Shum

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