Zambia stands at the cusp of default. The government requested a six-month break in interest payments in September, but creditors refused to sign up. In mid-October Zambia skipped a coupon payment, prompting S&P to downgrade its debt to selective default. This wasn’t particularly unexpected: the country has been struggling with its debt burden for some time, part of a group of nations that entered the pandemic facing debt sustainability questions. Zambia is now in a grace period before entering formal default absent a restructuring agreement. Will more countries follow?

Some of Zambia’s problems are shared by other high-risk debtors. Commodity and oil exporters have faced tricky years with lower revenues and surging expenses. Opaque Chinese loans make private lenders hesitant to agree to a haircut amounting to a transfer of funds to Chinese creditors. This works the other way too; no creditor is willing to offer relief that will simply enrich another. IMF research shows that countries would be better off restructuring early, but many worry that a rating downgrade might follow a relief request. The fund has called for transparency, stronger contract terms and an agreed restructuring framework, all good ideas that are unlikely to arrive soon enough.

Still, Zambia does face some unique issues, including an election next year which makes the government reluctant to accept politically painful IMF relief. Even if Zambia defaults, a damaging wave could be avoided. Chinese creditors are restructuring debts across the continent, and a deal with Angola would suggest that there is wiggle room for distressed countries. The G20 Debt Suspension Service Initiative has allowed a little breathing space, although not as much as some need. Yet underlying pressures remain, and politics will continue to complicate the economic picture. The risk of defaults is likely to hang in the air for some time to come.