Lenders urged to cancel Zambia’s debt as country faces economic meltdown | Zambia
More than 100 economists and academics have urged international lenders to crisis-hit Zambia to cancel a significant chunk of their loans during financial restructuring talks this month.
Zambia is seeking up to $8.4bn (£7.3bn) in debt relief from major lenders, including private funds managed by the world’s largest investment manager, BlackRock , to help restore order in its public finances.
Ahead of what are seen as tense negotiations involving the Chinese, French and British governments, anti-poverty charity Debt Justice said only major debt cancellation could save Zambia’s economy from a complete collapse.
Led by Columbia University economist Jeffrey Sachs and Jayati Ghosh, president of the Center for Economic Studies at Jawaharlal Nehru University, the global group of more than 100 economists and experts said in a letter to the committee creditors’ negotiation that Zambia should be given a waiver from paying debt interest due until 2023.
Earlier this month, the International Monetary Fund (IMF) approved a $1.3 billion loan to the country, which defaulted on its $17.3 billion external debt after its finances collapsed public during the pandemic.
Funds managed by BlackRock are among the largest private owners of Zambian bonds, holding $220 million. Some are worth almost half the value at which they were sold. Eurobonds worth $1 billion that mature in 2024 plunged 6.3% last week to less than 56% of face value.
Debt Justice, formerly known as the Jubilee Debt Campaign, estimated that BlackRock could make 110% profit for itself and its customers in Zambia if debt interest payments were paid in full. The country has three major private sector bonds that pay an average of 8.1% interest.
The letter read: “Due to high interest rates and the fact that Zambian bonds have been trading well below face value since 2018, many bondholders stand to make huge profits at the expense of Zambian citizens and creditor countries if paid at face value.
“It is therefore imperative that BlackRock and other bondholders agree to fully commit to large-scale debt restructuring, including deep haircuts, in order to make Zambia’s debt sustainable.”
Tim Jones, the charity’s policy manager, said the IMF loan had given the country some breathing room, but the $8.4 billion in interest payments due over the next two years should be “permanently canceled, not carried over to the 2030s to fuel another debt crisis”. next decade”.
Chad and Ethiopia requested debt relief under the joint G20 framework last year, but Jones said negotiations had yet to start. Sri Lanka and Bangladesh have also requested bailouts under IMF programs to support countries devastated by the climate crisis.
Zambia, which has cut health and social care spending by a fifth over the past two years to balance its budget, has seen its debt soar in recent years to finance infrastructure projects, many for help the country to complete the hydroelectric plants affected by the drought.
Solar power projects have made the country nearly self-sufficient in electricity, but high borrowing costs, local corruption and the coronavirus crisis have crippled the country’s finances.
Other IMF loans have been tied to pledges to end fuel subsidies for households and businesses, pushing the inflation rate above 20% last year before dropping to 9.8 % in August.
Of Zambia’s external debt, 46% is owed to private lenders, 22% to China, 8% to other governments and 18% to multilateral institutions. China is among government lenders that have agreed to a longer debt repayment schedule that private lenders, including banks, have so far resisted, Debt Justice said.
A BlackRock spokesperson said it wanted “a long-term sustainable outcome for Zambia”, but disputed the charity’s claim that it would benefit from a rescheduling of interest payments on debt, saying he was likely to incur losses when the bonds matured.
He said: “We see it as our duty to play our part responsibly, alongside all other creditors, to ensure there is a path to a sustainable outcome for struggling sovereign debt issuers. .
“As an asset manager, we are trustees of our clients, people from all walks of life. The money we invest on their behalf does not belong to us and we are obligated to act in the best financial interests of our clients at all times.
Jones said BlackRock likely bought Zambian bonds at rock bottom prices when it was clear the country was already in trouble.
BlackRock added that with Zambian bonds trading below their sale value and interest payments suspended since September 2020, “our clients have already suffered losses with respect to their private sector sovereign debt holdings of Zambia”.
The Zambian Civil Society Debt Alliance, Global Justice Now, Action for Southern Africa (ACTSA), Christian Aid, Cafod and Jubilee Scotland are also campaigning for BlackRock and other private lenders to cancel the debt.