Belt and Road Victim Zambia Sees Finances Implode After Early Pension Payout

The Zambian government passed a law on April 17 that allows citizens to cash out up to 20 percent of their pensions early. The resulting hit to government finances as claimants raced to pull some $300 million out of the National Pension Scheme Authority (NAPSA) is threatening to topple Zambia’s finances, and endangering a debt relief deal it has been working on since 2020.

In November 2020, Zambia became the first government in Africa to default on its debts due to the Wuhan coronavirus pandemic. The pandemic hit to Zambia’s economy came after years of spiraling debt due to falling prices for copper, its crucial mineral export, and because Zambia squandered titanic sums on infrastructure projects under China’s Belt and Road Initiative (BRI).

As with many other BRI client states, Zambia found it difficult to obtain loans from other sources because its Chinese loans were secretive and repayment terms were opaque. Other lenders are reluctant to get involved with Belt and Road countries because they fear China’s huge loans will be given repayment priority over all other creditors.

Zambia’s Belt and Road projects were riddled with corruption and under-performed on revenue, setting the African nation up for a hard fall during the coronavirus pandemic. China was not receptive to Zambia’s pleas for debt restructuring and grew downright hostile when the United States asked Beijing to reconsider.

“The biggest contribution that the U.S. can make to the debt issues outside the country is to cope with its own debt problem and stop sabotaging other sovereign countries’ active efforts to solve their debt issues,” the Chinese embassy to Zambia snarled in January.

Zambian officials have been working with the International Monetary Fund (IMF) for the past three years to strike a loan restructuring deal, while the government’s revenue stream struggled to recover from the pandemic years and foreign debt buyers kept their distance.

This made Zambia’s decision to allow substantial early pension withdrawals somewhat curious since the IMF tends to impose “austerity” restrictions on insolvent governments and the pension plan predictably ballooned into a massive expense.

According to the Times of Zambia, the NPSA had paid out roughly 2.5 billion kwacha (about $130 million) to early pension claims at the beginning of May. Bloomberg News reported that by the end of May, that figure spiraled to 5.8 billion kwacha, or nearly $300 million.

NAPSA spokesman Cephas Sinyangwe said the total figure is expected to double again, to over 11 billion kwacha by the time the last early pension payout is claimed. These expenditures will make it difficult for NAPSA to loan money to the central government, which has been necessary of late because government bond auctions are disasters, and outside loans are hard to come by.

The early pension payouts were intended to stimulate the Zambian economy by giving consumers money to spend, a form of theoretical stimulus that has a very spotty record of success in the real world.

Zambian Treasury Secretary Felix Nkulukusa offered a disappointing GDP growth projection of only 4.2 percent for the rest of 2023, leaving it well below the 4.7 percent growth of 2022. Inflation hit double digits in April for the first time in almost a year.