Zambia plans to restructure its debt with regional lenders, including the African Export-Import Bank (Afreximbank), and will remain in default on those payments until the process is finalised, Finance Minister Situmbeko Musokotwane has announced.

This approach conflicts with Afreximbank’s stance that its “preferred-creditor status” exempts it from bearing losses like other commercial creditors. The disagreement could lead to a contentious dispute that might influence how Afreximbank and comparable lenders across Africa are treated in future debt restructurings.

“We have to adhere by the rules agreed upon with all the creditors — in as much as we would want these African banks to have a preferential status, but that’s not our decision. That was not the decision of Zambia. That was the decision of the creditors — all of them,” Musokotwane said in an interview in Abidjan earlier this week.

Both Zambia and Ghana are restructuring their debts under the Common Framework, a plan created by the Group of 20 (G20) major economies to assist poorer countries in managing unsustainable debt following the Covid-19 pandemic.

The framework’s guidelines are designed to coordinate the restructuring process among various creditor groups and prevent any party from receiving unfair preferential treatment, Bloomberg reports.

Although Zambia and Ghana have reached agreements with official bilateral creditors and bondholders, they are still finalising negotiations with their remaining commercial lenders. For Zambia, this involves at least $543 million owed to the Eastern and Southern African Trade and Development Bank (TDB) and over $45 million to Afreximbank.

Afreximbank Managing Director Chandi Mwenebungu told investors on a recent call that the Cairo-based lender’s preferred-creditor status is guaranteed by its founding agreements, and as such, it has not participated in any restructuring in Ghana, Malawi, or Zambia. He added that all three countries are “up to date” with their payments.

Ultimately, it is up to the other lenders to acknowledge the preferred-creditor status claimed by Afreximbank or the TDB, said Chris Humphrey, a senior research associate at ODI Global who published a paper on this issue in January.

In Zambia’s situation, the government stated that its creditors classified the debts as commercial and therefore subject to restructuring.

“It was agreed that Afreximbank and the Trade and Development Bank do not have preferential status, their lending is more or less commercial. We can’t service their debt until we agree on the restructuring,” Musokotwane commented on the sidelines of the African Development Bank’s annual meetings.

Zambia’s economy continues to recover from a difficult debt restructuring process that began when it became Africa’s first sovereign to default during the pandemic in 2020. The country is also still bouncing back from last year’s drought, its most severe in over a century.