The small African country is pushing its creditors to waive off some of the loan repayments, creating a path other low-income nations can benefit from.
At least half a dozen low-income countries are facing issues with foreign lenders similar to what Zambia is trying to resolve in a high-stake negotiation.
A relief for the South African nation, one of the poorest in the world, can become a road map for Angola, Cameroon, the Republic of Congo, Djibouti, Ethiopia, Kenya, and Sri Lanka to sort out their own debt crisis.
In a big breakthrough, China and France last week announced that they are willing to take a haircut - which means forgoing some of their loan repayments - to help Zambia.
In 2020, Zambia became the first African country to default on its debt repayments following the onslaught of Covid-19 pandemic, which hit global economic output.
Zambia owes $17 billion to external creditors. Out of that, around $6 billion is owed to China alone.
According to the World Bank, poorer countries will pay $35 billion to their creditors in debt service payments this year, with around 40 percent of that going to China.
China and France have offered debt relief to Zambia under the G20 Common Framework designed to help indebted countries.
A debt restructuring with its creditors opens the way for Lusaka to receive the much-needed $1.4 billion in loans from the International Monetary Fund (IMF).
But the African country still has to deal with private creditors who have raised concerns about not having enough information about the deal.
Private creditors, who lend to governments against sovereign bonds, are often the biggest roadblock in the way of debt restructuring.
While China figures as a major creditor to low and middle-income countries, private creditors, which include the banks, often charge more in interest rates.
BlackRock, world's biggest asset manager, stands to gain 118 percent or $180 million on its debt if Zambia decides to pay it back in full, says Jubilee Debt Campaign, which lobbies for debt relief.
Over the past decade, Zambia accumulated a huge chunk of foreign debt.
Debt relief advocates say indebted governments should default on their debts as that frees up revenue, which can be spent on healthcare and education instead.
Landlocked Zambia is Africa’s second-largest producer of copper, which saw a drastic drop in its price during the pandemic, straining the country’s finances.
In just five years between 2012 and 2017, the average external debt as a percentage of the GDP of low-income developing countries surged to 50 percent from 30.35 percent.
Jubilee and other NGOs have called for complete debt write-offs of debts of developing countries, which is not unusual.
In 2001, developed economies agreed to give debt service relief amounting to $34 billion to 23 Heavily Indebted Poor Countries (HIPC), 19 of which were in Africa. The initiative was meant to tackle poverty.
Out of the total debt of the African countries, around 32 percent is owed to private investors - this comes to approximately $132 billion, according to one study.
Most of the debt of the developing and low-income countries consists of loans, all borrowed to pay off previous loans - trapping them in a vicious debt cycle.
Between 2000 and 2014, Zambia saw rapid economic growth, which averaged around 6.8 percent. It also borrowed money for infrastructure projects such as roads and highways.
President Hakainde Hichilema, who headed an accounting firm before joining politics, won the election last year because of resentment against economic mismanagement and the debt crisis.