The 2020 debt default by Zambia, the first in Africa during the COVID-19 pandemic, highlights the fundamental weaknesses of countries that depend on borrowing from outside sources and commodities exports. At the time, Zambia’s total public debt reached approximately USD35 billion, quadrupling since 2013 and resulting in a debt-to-Gross National Income (GNI) ratio of 168 per cent which reflected severe debt sustainability challenges.
The debt comprised about USD12 billion in external obligations, including USD3 billion owed to China, USD3 billion in Eurobonds and USD2.7 billion from multilateral lenders. Domestic debt stood at roughly USD15 billion, split among Treasury bills, government bonds and arrears. This rapid debt build-up, largely driven by infrastructure related borrowing, culminated in Zambia defaulting on most of its external debt, amid mounting fiscal pressures from falling copper prices, high borrowing costs and the economic fallout of COVID-19.
Like many African nations, Zambia’s economy remains structurally dependent on resource extraction, a legacy of colonial-era systems that perpetuates inequality and hinders sustainable development, despite the country’s political sovereignty. The excessive reliance on copper exports and a global financial architecture that forces developing countries to build up foreign exchange reserves were the root causes of the crisis rather than just fiscal mismanagement. Zambia’s experience provides important insights for debt managers on how to handle and lessen future debt crises.
Because copper makes about 70 per cent of Zambia’s export revenue, the country is extremely susceptible to changes in the price of copper globally. Economic diversification must be given top priority by the government to lessen dependency on certain commodities. Putting money into value-added sectors like manufacturing and processing copper can result in more reliable sources of income. Furthermore, supporting industries like renewable energy and agriculture can increase resilience to outside shocks. Targeted industrial policies, such as tax breaks, subsidies and infrastructure development, should encourage diversification.
Borrowing habits that put immediate demands ahead of long-term growth contributed to Zambia’s debt crisis. For a sustainable debt management, it is essential that loans are used for worthwhile projects like healthcare, education and infrastructure that have quantifiable financial returns. This means that the debt management function and considerations need to be well-embedded within government budget planning processes and seen as a proactive strategic financing measure rather than reactive.
Debt problems in developing countries (as exemplified by Zambia) are frequently compounded by limitations within the current international financial system. Debt managers ought to advocate for changes that provide nations more leeway in implementing structural change. Enhancing access to Special Drawing Rights (SDRs) can help increase foreign exchange reserves without taking on more debt. In order to prevent money from being consumed by debt service obligations, multilateral development banks (MDBs) should also take a more active role in funding climate resilient and green initiatives.
At 16.8 per cent of GDP, Zambia’s tax income is still insufficient to support its top development priorities. It is clear that in order to meet funding shortfalls within a less favourable concessional lending context, and with already high debt-to- GDP levels, governments must support comprehensive tax administration and policy reforms that generate additional resources to meet the spending demands in the medium-to- long-term.
Corruption and bureaucratic inefficiencies are widely recognised as key deterrents to foreign investment and obstacles to economic reforms. Institutional reforms must be given top priority to improve public spending’s accountability, efficiency and openness. Restoring investor confidence and making sure that funds are allocated to profitable industries depend heavily on open budgeting, strong oversight procedures and anti-corruption initiatives.
The debt challenge in Zambia emphasises the necessity of a paradigm change in the way economies are set up and debt is managed. Debt managers need to address the underlying causes of financial instability rather than just band aid solutions. To escape the cycle of debt crises and attain sustainable, inclusive growth, nations like Zambia should prioritise diversification, smart borrowing, domestic income mobilisation, global financial reform and governance enhancements. It is evident from Zambia’s experience that structural change is required, and it is not a matter of choice anymore.