ZAMBIA urgently needs debt relief to help the country deal with the Coronavirus pandemic and revive the stressed economy, says Oxfam.
In a policy note dubbed: Zambia’s Private Debt and the Coronavirus, Oxfam, the globally-renowned NGO focused on fighting inequality to beat poverty, urged Eurbond holders, among other creditors, to grant Zambia debt relief because the country was currently overwhelmed with the onset of the Coronavirus pandemic.
So far, Zambia has managed to secure debt repayment suspension from the China Development Bank (CDB) last week ahead of the crucial Eurobond holders’ meeting to decide on the Zambian government’s repayment holiday request on November 13.
“Debt has a devastating impact on Zambia in terms of the inability by the government to effectively fight COVID-19, protect the most vulnerable, while trying to stabilise the economy and achieve meaningful and sustained recovery. In 2019, for example, Zambia spent about of 8.8 per cent of total revenue on health compared with 32.6 per cent on debt servicing. Like many countries in the developing world, Zambia needs urgent debt relief. Although Zambia is receiving some relief on debt payments through the DSSI (Debt Service Suspension Initiative), it is struggling with debt service payments still owed to the private creditors, which are not covered by the scheme. In addition to bilateral and multilateral debt, Zambia has US $3 billion outstanding in Eurobonds and owes approximately US $2 billion more in other forms of external loans to private lenders. This is the reason the government had requested creditors for a six-month interest-payment holiday from October, 2020, until April, 2021, which was rejected,” the policy note, released via Oxfam Zambia media and communications lead Misozi Tembo, read.
“Private sector debt is important because, for Zambia, the research has shown that in 2020, about 69 per cent of all debt in Zambia is owed to private creditors – a key part of which includes the three Eurobonds totalling US $3 billion. Private sector debt is also important because it is associated with some of the highest debt servicing costs, coupled with very difficult processes for negotiating with numerous, powerful bond holders. Eurobonds should be prioritised in debt relief schemes, as they have some of the highest debt servicing costs, due to the combined effect of high interest rates and currency fluctuations. During the COVID-19 pandemic, the Zambian kwacha depreciated about 35 per cent against the US dollar, translating in higher debt servicing costs for the country.”
The NGO implored debt relief for Zambia to enable the Zambian government channel the much-needed resources to other areas of the economy to revive growth.
“Private sector debt has no independent mechanism for review and countries, such as Zambia despite being on the verge of default, yet they continue to repay debts to rich banks and hedge funds instead of investing in their COVID-19 response and rescuing economies that are in recession. With private creditors not participating in any discernible, meaningful coordination mechanism, countries that are eligible for the DSSI (which includes Zambia) are paying private creditors US $32 million per day (US $961 million per month) to large banks and investment funds, while facing poverty and economic crises,” stated Oxfam, who, however, urged the Zambian government to stop contraction of new commercial external debt and put in place a more robust debt sustainability strategy and debt repayment plan.
Large financial corporations, such as BlackRock, HSBC, Goldman Sachs, Legal & General, JP Morgan and UBS, have assumed an increasingly important role in the world of sovereign debt.
Private creditors’ share of the foreign debts of low-and lower-middle-income governments increased from 25 per cent in 2010 to 47 per cent in 2018, Oxfam’s data shows.
The multi-trillion-dollar asset manager BlackRock alone holds close to US $1 billion of Eurobonds in Ghana, Kenya, Nigeria, Senegal and Zambia through a number of funds.
Private sector debt is shrouded in secrecy and complexity though, with no comprehensive or independent mechanism for reviewing or writing the debt down.
For example, on Zambia’s US $1 billion Eurobond due to mature on April 14, 2024, bondholders holding around US $295 million are known, but the remaining bondholders who hold US $705 million are not, according to Oxfam’s data.