It is by now clear that many low- and middle-income countries will have to restructure their debt, but that creditors heterogeneity, among other factors, will make this difficult. Indeed, more than two years after they started, negotiations with Zambia have not yet been completed. Delays are discouraging countries that need a restructuring from coming forward, hurting their development prospects. Among official creditors, China is the largest, and it has an interest and responsibility in having an orderly process in place.
This situation is quite unlike the debt crisis of the 1980s, which involved banks and bilateral lenders. LMICs’ debt is now due to a multitude of creditor groups, including China, which is the newest entity with the least experience in international debt workouts.
According to the most recent World Bank data, which we analyze in our recent paper, sub-Saharan Africa’s external debt was held by four different types of external creditors: private creditors such as euro-bondholders and international banks, 41% of total external debt; international finance institutions such as the World Bank, the International Monetary Fund, and other regional development banks, at 32%; Chinese parties, which include official lenders and financial institutions, 17%; and other bilateral lenders, 10%.