Zambia's debt turnaround
Strategic restructuring reforms and international partnerships from 2024 are driving Zambia’s economic recovery.
In November 2020, Zambia became the first African nation to default on its debt during the COVID-19 pandemic, a stark warning of the dangers of economic over-reliance on commodities like copper.
Zambia’s 2020 debt crisis resulted from years of structural weaknesses and external shocks. For decades, the country relied heavily on copper mining, a sector prone to global price fluctuations. While Zambia experienced a copper boom in the 1960s, later decades saw unstable prices that strongly disrupted its fiscal and trade balance. To diversify its economy, Zambia began investing in infrastructure in the late 2000s. Many of these initiatives were funded by external borrowing, including significant loans from Chinese lenders. However, evidence from the CARI and AidData datasets suggests that a substantial share of these loans was allocated to the government sector to cover public expenses and mining-related investments, rather than infrastructure development, particularly prior to President Hakainde Hichilema’s administration. These borrowing patterns contributed to rising debt levels and unsustainable interest payments, compounding Zambia’s fiscal challenges.
Zambia’s 2020 debt crisis resulted from years of structural weaknesses and external shocks
The COVID-19 pandemic worsened Zambia’s economic struggles. Global supply chains broke down, copper demand fell, and key sectors like mining, agriculture and tourism suffered. By the end of 2020, year-on-year inflation hit 15.7%, and the kwacha - Zambia’s currency - depreciated by over 50% during the same year. Foreign reserves dropped to just over two months’ worth of import cover, and public debt surged to 103.5% of GDP in 2020, up from 61.9% in 2019. At the same time, the fiscal deficit climbed from 7.7% of GDP in 2017 to 14% in 2020 due to persistent capital expenditures and falling tax revenues.
In November 2020, Zambia defaulted on a US$42.5 million Eurobond payment. This default led to severe spending cuts, growing poverty and loss of access to international financial markets. Credit rating agencies quickly downgraded Zambia, with Fitch assigning a "Restricted Default" status and S&P Global classifying it as a "Selected Default".
Under pressure, Zambia turned to the G20 Debt Service Suspension Initiative (DSSI) to temporarily freeze debt payments. By February 2021, the country formally applied for debt restructuring under the G20 Common Framework, demonstrating its commitment to engaging in multilateral debt relief. This allowed Zambia to negotiate with official and private creditors while implementing fiscal and structural reforms to enhance debt transparency and reduce public sector inefficiencies. Key milestones followed in 2022, including the establishment of Zambia’s official sector creditor committee, co-chaired by China and France, two of Zambia’s largest official creditors with South Africa serving as vice-chair. 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. Their commitment to providing debt relief paved the way for the International Monetary Fund (IMF) to approve a US$1.3 billion Extended Credit Facility (ECF) in August 2022.
In December 2024, the IMF disbursed US$184 million to Zambia as the fourth tranche under the ECF arrangement, reflecting Zambia’s progress in meeting reform benchmarks. This multi-year program is designed to stabilise the economy and restore debt sustainability, and spans 38 months, with concessional terms that include low or zero interest rates, a 5½-year grace period, and a 10-year repayment window. Initially approved for US$1.3 billion, the ECF program was augmented in 2024 to US$1.7 billion, which indicated the IMF’s confidence in Zambia’s reform agenda.
'The Zambian authorities have been implementing an ambitious economic reform program supported by the IMF, which aims to restore fiscal and debt sustainability, create fiscal space for much-needed social spending, and strengthen economic governance and transparency.' - Kristalina Georgieva, IMF Managing Director
The effects of these efforts are already visible. With more fiscal space, Zambia has increased investments in education, healthcare, and infrastructure. In 2024, the health sector’s budget accounted for 11.8% of the total national budget, and this allocation exceeded the 11.2% projection under the Medium-Term Budget Plan (MTBP). Meanwhile, Zambia’s GDP grew by 2.5% in the third quarter of 2024 compared to the same period in 2023, when it grew by 5.7%.
As fiscal pressures were reduced, Zambia is shifting focus to long-term development goals. Agriculture, contributing approximately 20% to the nation's GDP, is a key priority. The sector also employs about 59% of the labour force. The government plans to expand irrigated farmland from 155 000 hectares in 2022 to 300 000 hectares by 2030. Programs like the Agro-Processing Development Initiative aim to reduce post-harvest losses, boost exports, and create rural jobs by increasing local crop processing.
Renewable energy is another focus area. Zambia depends on hydroelectric power for 83% of its electricity generation capacity, making it vulnerable to droughts. To address this, the government has launched solar projects such as the Bangweulu (54 MW) and Ngonye (34 MW) solar plants. Through the Scaling Solar Program, Zambia plans to attract private investments to diversify its energy mix and stabilize power supply.
Despite these achievements, Zambia still faces significant challenges. Its reliance on copper for 70% of export earnings leaves the economy continuously vulnerable to price swings. A downturn in global demand or prices could quickly drain foreign reserves, destabilise the currency, and widen the fiscal deficit. Climate risks also threaten agriculture and energy, with a 2024 drought cutting crop yields by 15% and disrupting hydroelectric production. Zambia's annual inflation rate rose to 16.7% in December 2024, the highest level since November 2021. This increase reflects the impact of currency weakness and a prolonged drought. Food prices also increased by 18.6%, while non-food inflation reached 14.2%.
On the fiscal front, Zambia’s debt restructuring under the G20 Common Framework has provided temporary relief but does not adequately address the systemic issues driving recurrent debt crises. Public debt remains high, while debt servicing takes up a large share of government revenue. The risk of slipping back into unsustainable borrowing is compounded by limited domestic revenue mobilisation, as tax revenues account for only 16.8% of GDP, which is slightly above the sub-Saharan Africa average of 16.5%. Without meaningful improvements in public financial management and tax system reforms, Zambia may struggle to sustainably fund its developmental priorities going forward. Governance challenges add another layer of complexity. In 2023, Zambia's Corruption Perceptions Index (CPI) score improved to 37, ranking 98th out of 180 countries. Corruption and bureaucratic inefficiencies deter foreign investment and slow economic reforms.
Pathways to sustainable growth
Despite these setbacks, projections for 2025 are optimistic, with anticipated GDP growth rates ranging from 4.1% by the World Bank to 6.6% by Zambia’s Finance Minister. This is explained by expected improvements in the mining, services and manufacturing sectors, and a rebound in global copper prices. Zambia’s recovery shows the potential of well-coordinated reforms and international collaboration. However, long-term success depends on several key issues, including the need for economic diversification, improved governance and enhanced resilience to climate change.
Zambia’s recovery shows the potential of well-coordinated reforms and international collaboration
Economic Diversification through Value Addition. Reducing Zambia’s dependence on raw copper exports is critical. By investing in local smelting and manufacturing, the government can capture more value from its natural resources, particularly copper and cobalt. This shift would not only increase export revenues but also create jobs and support industrialisation. Agribusiness presents another opportunity, with targeted investments in value chains for maize, cassava and soybeans that offer pathways to higher rural incomes and export potential.
Improved Governance and Transparency. Governance reforms are vital to maximising the impact of public resources. Considering recent "errors" in debt reporting, transparency in debt management must be prioritised to rebuild investor confidence. Open budgeting and institutional oversight can ensure funds are directed toward productive sectors. Addressing corruption and improving accountability will enhance Zambia’s financial credibility and reduce inefficiencies in public spending.
Productive Borrowing and Revenue Reforms. To align borrowing with sustainable growth, Zambia should focus on financing projects with measurable economic returns, such as renewable energy and industrial infrastructure. Simultaneously, comprehensive tax reforms are needed to broaden the revenue base, while reducing evasion through digital tools. Sustained commitment to these priorities could help Zambia transform its economy into a model of inclusive and sustainable development for other nations.
By prioritising such concrete initiatives in diversification, governance and strategic investments, Zambia can chart a path toward sustainable and inclusive development that inspires progress across the region.
Image: Forextime/Flickr
