(Ecofin Agency) - In June 2023, Zambia agreed with its official bilateral creditors to restructure $6.3 billion of external debt, including $4.1 billion owed to China.

Zambia accidentally sent $80 million to China through its state-owned electricity company, Zesco, while still navigating a challenging debt restructuring process. The transfer was disclosed by Treasury Secretary Felix Nkulukusa, who described the situation as a regrettable setback during an already tense period.

The funds came from a secure account holding electricity revenues from a power plant built and financed by Chinese companies. Speaking in Lusaka, Nkulukusa explained that about $80 million was mistakenly sent from this account, further complicating Zambia's financial situation.

A Challenging Debt Restructuring Process

Zambia, the first African nation to default on its debt during the COVID-19 pandemic in 2020, signed a memorandum of understanding in October 2023 with its official creditors' committee, co-chaired by China and France. However, a final agreement with China has yet to be reached. The delay prevents Zambia from resuming regular debt payments, and the accidental transfer adds another layer of complexity to the negotiations.

To address the error, the Zambian government has proposed treating the $80 million as an advance payment toward interest owed to China since 2023. “That is the discussion we have. We’re looking for a solution to that,” Nkulukusa said.

Economic Struggles Persist

The incident comes at a time of economic hardship for Zambia, where the effects of its debt crisis linger. High inflation and slowed economic growth have intensified social tensions, while international creditors, including the International Monetary Fund (IMF), closely monitor the country.

China, Zambia's largest bilateral creditor, has not yet commented on the accidental payment. Observers worry that the mistake could further complicate talks about restructuring Zambia’s external debt, estimated at over $13 billion. If China accepts Lusaka's proposal, it could signal cooperation. However, if the proposal is rejected, negotiations could face further delays, jeopardizing Zambia's efforts to stabilize its economy.