Debt-ridden Zambia and the International Monetary Fund (IMF) are locked in difficult talks for a possible bailout, laying the foundation for debt relief under a new framework to help poor nations tackle unsustainable arrears.
The copper-rich southern African country became the continent's first coronavirus-era sovereign default after skipping a $42.5-million (34.8-million-euro) interest payment on a eurobond last year.
Zambia -- which saw its external debt balloon to almost $12 billion in 2020 -- in December requested funding from the IMF to finance reform efforts.
It then missed a second $56.1-million eurobond coupon payment last month, and days later applied for loan restructuring under a G20 debt suspension initiative.
Three-week-long virtual talks with the IMF started on February 11.
"There is incentive to get Zambia under some kind of (IMF) programme that will support a debt restructuring process within the G20 common framework," said Mark Bohlund, analyst at REDD Intelligence.
But President Edgar Lungu is currently more focused on curbing the setbacks of coronavirus and garnering public support ahead of general elections in August, analysts say.
"They have very different interests," said Aleix Montana of the research firm Verisk Maplecroft.
"The IMF wants Zambia to be transparent about the conditions of its debt and implement austerity measures."
Zambia wants to "continue investing in popular infrastructure projects to... secure the president's re-election," he added.
Central bank governor Christopher Mvunga assured talks with the IMF were "going on cordially," adding government had already slashed borrowing, cancelled construction projects and decreased spending to satisfy the IMF's requirements.
But a recent state move to purchase a majority stake in the Mopani Copper Mines from Swiss-based giant Glencore is likely to complicate discussions, analysts warn.
Government-controlled ZCCM Investments Holding is buying Mopani for a nominal $1, but assuming the company's $1.5-billion debt.
Zambian financial analyst Trevor Hambayi was doubtful the government would obtain a bailout before August.
"The IMF has been very categorical on what we need to do," he said, noting that Zambia has been pursuing an IMF programme since 2016.
Bohlund, however, suggested Zambia's position as a "test case" for bilateral debt relief under the G20 framework could push the IMF to "announce" an extended credit facility before August and "iron out details" after government transition.
Zambia was the third African country to apply for debt restructure under the G20 initiative after Ethiopia and Chad.
The world's 20 richest nations -- including China, Africa's biggest creditor -- last year agreed on a moratorium allowing poorer countries to temporarily stop servicing eligible debt to focus resources on combatting the coronavirus.
The stakes are high. Several African nations have seen dangerous pre-pandemic debt levels worsen with coronavirus, stoking international concern.
But civil society fears the pressure could rush the IMF into financial support without requiring that China and Zambia's private creditors agree to significant debt relief, let alone cancellation.
"They want this to work," said Iolanda Fresnillo, advocacy officer for the European Network on Debt and Development (Eurodad).
"Even if the private sector offers a very mild debt re-profiling without taking haircuts, without any debt write off, the IMF will probably go ahead with it."
"We know that what Zambia needs is restructuring and debt cancellation," she added.
An IMF spokesperson told AFP discussions with Zambia were "ongoing".
Lack of transparency remains a sticking point that could both stall the IMF talks and hinder negotiations with creditors.
Officially Zambia in 2019 owed around $3 billion to bondholders, $3.5-billion in bilateral debt and $2.8-million to multilateral lenders, according to World Bank data, as well as some $2.4-billion to commercial creditors.
Around $3 billion of this debt is owed to China and Chinese entities.
But there are concerns about "additional undeclared debts", said Bohlund, particularly towards commercial lenders in China.
The opacity of Chinese loans, as well as China's influence over the G20 framework, has raised fears of unequal treatment.
"Bondholders fear that if the IMF provides some debt relief it will be used to pay Chinese creditors," Montana said.
China, meanwhile, will likely only accept writing off the debt if the offer is matched by commercial creditors -- a scenario Bohlund considers improbable.
"These companies are often asset-managing other people's money," he explained. "They can't do debt relief because... it's not their money."