(The original article in Japanese was posted on February 17, 2023)

On February 17, a round-table meeting on the debt issues of emerging and developing countries will be held online. This meeting will be co-chaired by the International Monetary Fund (IMF), the World Bank, and India, which is the chair of the G20 (Group of Twenty, comprising 19 countries and the European Union (EU)), to deliberate the methods to eliminate the “unsustainable debts.” Other participants will be major creditor nations such as the G7 (Group of Seven, consisting of Canada, France, Germany, Italy, Japan, the UK, and the US; additionally, the EU as a non-enumerated member) and China; debtor nations such as Zambia, Ethiopia, and Ghana; the Institute of International Finance (IIF); the International Capital Markets Association (ICMA); and private financial institutions.

The reason that the meeting came to be held is there is an immediate need to solve the problem of Zambia’s national debts. Zambia accelerated their investment in the infrastructure using external debts against the backdrop of the increase in copper prices. In particular, Mr. Edgar Lungu, who assumed the position as the president in 2015, inflated the country’s debts to China. As a result, Zambia started facing an impasse on interest payment on Eurobonds, essentially defaulting on the debts in 2020. In the presidential election held in 2021 amid the economic dislocation, Mr. Lungu was defeated, and Zambia’s opposition leader, Mr. Hakainde Hichilem, won. The new administration froze the national project relying on Chinese capital and requested creditor nations for debt restructuring. The external debts at the end of 2021 was 17 to 20 billion US dollars, of which $6 billion is the debts to China. Therefore, the focus of the meeting this time will be how to settle the debts to China.

This structure is China’s typical “debt trap.” It is said that China’s external loans are not clear in terms of financing conditions, and the boundary between the public and private sectors is obscure. As for the debt issues, negotiations between the nations concerned have been prioritized. However, in the case of the current matter of Zambia, China has agreed to discussions within the international financial framework, which is a step forward. I expect this issue to be a good precedent for addressing similar issues that may appear one after another in the future.

Decrease in revenue from tourism due to the COVID-19 pandemic, soaring prices of food and resources caused by the Russian invasion of Ukraine, and currency depreciation due to monetary squeeze by the US and European authorities have been accelerating the outflow of foreign currency from and increasing the burdens of external debt repayment of emerging countries. According to the IMF, the external debts of countries with low-income or middle-income economies at the end of 2021 reached $9.3 trillion. National finance of such countries with massive debts are facing a crisis. In the first place, widening disparity and increasing poverty in politically unstable countries with low-income or middle-income economies may lead to new conflicts. No more fragmentation should occur. Creditor nations need to abandon hegemonic views and realize debt consolidation and highly effective cooperative support for debtor countries to independently reconstruct their countries.

This Week’s Focus, February 17

Takashi Mizukoshi, the President