Zambia Became a Test Case for Global Debt Relief, and Its Impact Is Still Unfolding

When Copper Cannot Cover the Bill

November 2020 marked a rare moment when Zambia became the first African country to default on sovereign debt during the COVID-19 pandemic. Debt relief then stayed close to the country’s economic story, often difficult and uneven to manage.

Figures from the Debt Relief for a Green and Inclusive Recovery (DRGR) Project show African governments spend about $163 billion on servicing debt. Large repayments pull funds away from domestic use. Health systems, schools, and other public services receive less, and progress toward the United Nations 2030 Agenda for Sustainable Development slows.

Initial hesitation from the International Monetary Fund (IMF) gave way to action on August 31, 2022, when a 38-month Extended Credit Facility for SDR 978.2 million, about $1.3 billion, was approved. June 2024 brought an increase to $1.7 billion, tied to economic stabilisation and debt management.

Extra fiscal room has supported spending on education, healthcare, and agriculture. The October 2025 deadline has passed, alongside a request for a 12 month extension, leaving the strategy open to closer examination.

For decades, Zambia relied heavily on copper mining. Copper still anchors export earnings. Global price swings shape outcomes in ways domestic policy cannot fully control. A boom in the 1960s brought revenue, then downturns disrupted fiscal planning and trade balance. Diversification efforts started in the late 2000s, with infrastructure projects meant to broaden economic activity. Many of these projects depended on external borrowing, including large loans from Chinese lenders. Debt accumulated quietly during that period.

Rising debt levels soon became harder to manage. COVID-19 pushed existing pressures further. Public debt reached 103.5% of GDP in 2020, up from 61.9% in 2019. Fiscal deficit figures moved in the same direction, climbing from 7.7% of GDP in 2017 to 14% in 2020, due to capital spending continuing while tax revenues fell. Numbers alone tell part of the story, but they also point to limits in fiscal flexibility.

November 2020 brought a missed US$42.5 million Eurobond payment. Access to international financial markets narrowed after that point. Spending cuts followed, alongside rising poverty. Zambia then turned to the G20 Debt Service Suspension Initiative to pause payments. February 2021 saw Zambia apply under the G20 Common Framework for Debt Treatment.

A formal creditor structure took shape in 2022 through the official sector creditor committee. China and France co-chaired, with South Africa as vice chair, and the committee was established to steer the process. “The co-chairing roles reflect China’s position as Zambia’s largest bilateral lender and France’s leadership within the Paris Club, a group of major creditor nations,” writes policy analyst, Solikha Makhmatova. That arrangement helped move discussions with the IMF forward and connect earlier steps to the Extended Credit Facility.

Fiscal consolidation now sits at the centre of the process. Government spending choices carry weight here. Pressure to reduce deficits meets real social needs, and that tension stays unresolved rather than settled.

Who Sits at the Creditor Table

Pressure to manage deficits now shows up clearly in how the Extended Credit Facility is structured. ECF terms split conditions into “Prior Actions” and “Structural Benchmarks.” Prior Actions come first, before financing approval or review completion. Structural Benchmarks follow as ongoing reform targets set by the IMF. Zambia agreed to both.

Policy changes include a new Public-Private Partnership Act. The government framed this law around private property rights, contract enforcement, and stronger private sector participation in infrastructure. Fiscal rules also tightened. Analysis of Zambia’s IMF Programme points to procyclical budget cuts and tax mobilisation, with a target of a 3.2% surplus by 2025. Domestic debt stayed unchanged during the renegotiation. Tax policy shifted instead. Value Added Tax exemptions were removed on beverages, cement, coal, and fertiliser, which pushed prices upward. Fuel and electricity subsidies were reduced, and living costs rose quickly. Low-income households felt that change first.

Monetary and fiscal choices now work together in a narrow space. Interest rates remain low, while taxes increase to cover expenditures. Policy goals include inflation control, lower debt-to-GDP, and tighter debt service to revenue levels. Deficit management shows some progress, though results vary across sectors. Some in government argue that debt naysayers are being proved wrong.

Wemos, through its “Cost of Austerity” research, gives one clear example. Debt servicing interest rates dropped to 1.0% for 14 years, with a cap at 2.5% afterward. Estimated savings reach about US$5 billion between 2023 and 2031. Debt claims fall by almost 40%  under this structure. Numbers like these explain why the arrangement continues.

Concerns still come from within Zambia. Civil society organisations such as ActionAid Zambia question the direction of these policies. Their report, produced within a wider landscape of civil society organisations, states, “Although these targets are supposed to be a means to an end, they are hardly treated as such. As a result, their real impact in terms of development results – for instance, on poverty, hunger, illiteracy, vulnerability, and mortality is often overlooked. Granted, these targets are important, but it is problematic to treat them as development goals.” ActionAid Zambia raises these issues directly.

Finance and National Planning Minister Situmbeko Musokotwane takes a different view, saying “the country’s economy is showing remarkable resilience”.

Musokotwane’s optimism sits alongside numbers that show how complex Zambia’s creditor mix has become. In 2023, Zambia’s public and publicly guaranteed external debt in foreign currency stood at about $18 billion. Official bilateral creditors accounted for $6.3 billion, with $4.2 billion owed to China. Eurobond holders held $3.5 billion. Commercial creditors were owed $3.2 billion, while $1.7 billion remained in arrears to various commercial entities. Each group negotiates differently, which shapes how restructuring unfolds.

China’s role draws attention because of its scale. Chinese loans are a significant part of the picture. ODI Global places Chinese loans at around 17%of African external debt. Private sector exposure, however, runs deeper: about 30% of Africa’s total debt comes from private sources, largely tied to Eurobonds. Zambia reflects this mix. When President Hakainde Hichilema took office in August 2021, focus turned to securing better terms and lowering the debt-to-GDP ratio. That shift in approach meets a creditor base with competing interests, as four lessons from Zambia’s emerging default suggest.

G20 Common Framework procedures guided Zambia’s restructuring. Launched in November 2020, this mechanism allows low-income countries to seek coordinated debt treatment. Zambia became the first test case. Negotiations stretched close to four years. Disagreements between bondholders and Chinese creditors slowed progress at several points.

London Stock Exchange details outline key terms of the Eurobond restructuring. “A most favoured creditor clause, and a loss reinstatement clause… Under the agreement, Bondholders would forego approximately $840 million of their claims, and provide cash flow relief of approximately $2.5 billion during the IMF programme period.” Timeline runs for 38 months, from August 2022 to October 2025. Concessional terms include a grace period and a repayment window of 10 to 15 years. Debt payments move forward in time rather than disappear, as other commentary on slow, steady progress notes.

Some analysts point to recurring patterns in sovereign debt markets. Marina Zucker Marques writes, “this dynamic risks creating a self-fulfilling prophecy where high interest burdens actually push sovereigns to default. Indeed, bondholders can be seen to triumph both before and after debt restructuring, while the countries—and their citizens—wait in financial limbo”, a view which sits within broader concerns about restructuring fatigue.

What Zambia Owes Its Citizens

Amnesty International reports that Zambia’s 2021 budget allocated more funds to debt servicing than to education, health, water, and sanitation combined. That comparison sets a baseline for how tight fiscal space once felt. A shift appears in the 2025 budget, which rose by 22% over the 2024 budget. Allocations now lean toward social and economic sectors, governance, and infrastructure. Numbers move, but pressure on spending decisions remains visible.

Legal obligations shape part of this picture. Zambia must provide healthcare that is available and of good quality. Budget data from the National Health Sector Plan 2022 to 2026 shows domestic public health spending rising from 8% in 2022 to 11.8% in 2024, then over 20% in 2025. Gaps still show up in practice. Rural health facilities face staff shortages and lower usage rates. Levy Mwanawasa University Teaching Hospital reflects this pattern, where capacity does not always match demand.

The government invested in school infrastructure between 2022 and 2025, including extra desks and more early childhood learning centres, in line with efforts to bridge the financing gap. The Education For All policy increased enrolment across the country. Classrooms filled quickly. Demand for trained teachers and expanded facilities grew at the same pace. Pupil-teacher ratios rose, especially in rural areas. Living Hope Community School in Mtendere shows this strain clearly, where many pupils depend on a small number of trained teachers, resembling situations in church-based community schools. Pressure on buildings and materials grows alongside enrolment.

Household conditions shape how these policies are felt. Inflation reduces the real value of government spending. Higher living costs affect access to both health and education services. Afrobarometer data places about 60% of Zambia’s population below the national poverty line, with more detail in a recent briefing. Employment figures show slight movement, with overall unemployment falling from 12.6%to 12%, and youth unemployment from 27.6% to 26.4%. Poverty remains more pronounced in rural areas. Reporting on free education highlights how these pressures intersect with service delivery.

Social protection programmes attempt to respond. The Ministry of Community Development and Social Services runs the Social Cash Transfer programme, described as a large-scale national initiative providing regular, unconditional cash transfers to eligible households. Coverage reached over 1 million households across all 116 districts by 2022. Studies still point to limits. Funding gaps persist, reliance on external aid continues, targeting errors occur, and administrative costs reduce impact. Budget increases appear on paper, yet everyday outcomes do not always follow in a straight line. Wider debates about creating fiscal space feed into these concerns.

Concerns about day-to-day spending extend beyond Zambia and connect to a wider debt picture. Policymakers and investors track how sovereign debt shapes progress toward the SDGs by 2030. Data shows debt servicing costs and interest payments in low and middle-income countries reached record levels of $1.4 trillion in 2024. Large repayments reduce funds available for health care, education, and agriculture. Pressure on public budgets becomes easier to see when these sectors compete with debt obligations.

Zambia’s own reporting offers a mixed view. Voluntary National Review 2023 indicates progress on SDG 13 through renewable energy efforts and resource management. Hydroelectric power accounts for 83% of electricity generation capacity, which leaves the country exposed to droughts. The government responded with solar projects such as Bangweulu at 54 MW and Ngonye at 34 MW. The Scaling Solar Program aims to draw in private investment and widen the energy mix.

Other areas show gradual movement. SDG 3, SDG 7, and SDG 12 record incremental gains. SDG 17 appears in ongoing attempts to build partnerships tied to the Green Growth Agenda, alongside efforts to manage climate change and food insecurity.

Infrastructure spending over recent years reflects earlier policy choices. Roads and airports expanded through large projects, supported by investment profiles. Financial Insight Zambia notes many of these investments lacked clear cost-benefit analysis or firm revenue plans, describing Zambia’s debt dilemma. Borrowing filled the gap. Debt accumulated in the process. Structural issues within the economy remained largely unchanged, even with visible construction.

Social outcomes still show uneven access. Poverty, hunger, and clean water challenges remain, especially in rural communities and among marginalised groups. Zambia still struggles with SDGs related to these areas. Healthcare, social protection, and digital access do not reach everyone at the same level. Gaps persist alongside new investments.

Longer-term thinking begins to circle back to production and exports. Continued reliance on raw copper exports keeps revenue tied to external price swings. Economists point toward local smelting and manufacturing as one option. Agribusiness offers another path, with potential for higher rural incomes and export growth through targeted investment, as some business case studies suggest. Choices made here could reshape how future borrowing is used and how economic pressure is managed.

Questions around diversification and public spending lead back to a wider continental pattern. United Nations data shows 23 African countries were either in debt distress or at high risk as of July 2024. Debt stress here means governments struggle to meet financial obligations and often turn to restructuring. Zambia’s experience sits within this group, not outside it. A system built on similar policy prescriptions across different economies continues to shape outcomes. Fiscal stabilisation often takes priority, while deeper causes of economic strain receive less attention.

Progress toward the 2030 Sustainable Development Goals depends on more than debt relief alone. Broader changes in how debt is structured and negotiated matter, but domestic choices carry equal weight. Infrastructure spending still needs discipline. Borrowing without clear returns repeats earlier patterns. Zambia’s past projects show how this can unfold.

Analysts describe Zambia as a bellwether for other African countries facing similar risks. That label carries a warning as much as recognition. Lessons from Zambia’s path point toward financing projects with measurable economic returns and expanding local production beyond raw copper. Agribusiness and manufacturing often appear in these discussions for a reason.

Policy direction also turns toward citizens. Hunger, poverty, and inequality remain visible concerns. Public financial management and tax reforms shape how resources move through the system. Without steady attention to these areas, funding pressures return. Zambia’s path does not close here, and neither does the broader question of how debt, growth, and public welfare intersect across Africa.