To keep Zambia’s finances from spiralling out of control, BlackRock, the world’s largest fund manager, has been pressured to delay loan interest payments from the African country.
Anti-poverty activists claimed that BlackRock, which manages $10 trillion (£7.68 trillion) in assets, was one of the private-sector lenders who refused to lower the interest rate or delay payments on Zambian bonds, despite the fact that governments and international agencies hold the country’s debts.
The charity Jubilee Debt Campaign projected that if the obligations were paid in full, the asset management, which holds $220 million in Zambian state bonds on behalf of clients in its index-linked exchange-traded funds, could make a $180 million profit.
“This would represent a 110% profit on what we estimate BlackRock paid for the debt,” the charity said.
Zambia’s debts have risen in recent years to pay for infrastructure projects, many of which are intended to complement the country’s drought-affected hydropower plants. The country has cut health and social care spending by a fifth in the previous two years to balance its budget.
Solar energy initiatives have almost made the country’s power self-sufficient, but the country’s finances have been devastated by excessive borrowing costs and the Covid issue.
Further loans from the International Monetary Fund (IMF) are conditional on ending fuel subsidies to individuals and businesses, which pushed inflation beyond 20% last year.
Private lenders account for 46% of Zambia’s external debt, while China accounts for 22%, other governments for 8%, and multilateral organizations for 18%.
According to the Jubilee Debt campaign, China is among the government lenders that have agreed to a lengthier debt payback plan that private lenders, including banks, have so far opposed.
Zambia’s government has already defaulted on commercial lender loans and is on the verge of defaulting on others, risks becoming a pariah on international debt markets.
Zambia’s bonds have had an average face value of 59 cents on the dollar since the start of the pandemic in early 2020, according to the charity, and an average interest rate of 8.1 per cent. At the start of 2021, the southern African country applied for a new G20 debt reduction scheme, although no debt has yet been wiped.
According to Tim Jones, the head of policy at the Jubilee Debt Campaign, BlackRock bought Zambian bonds at rock-bottom prices when it was evident the country was already in crisis.
He added that it is unjust for BlackRock and other lenders to profit massively from Zambia’s debt issue, noting that BlackRock refuses to forgive Zambia’s debt, the UK and other G20 countries should encourage Zambia to remain in default.
Debt restructuring negotiations are expected to begin later this month. On April 20, during the IMF spring meetings, G20 finance ministers will meet to discuss the progress of the debt relief package known as the common framework.
According to the IMF, last year, Zambia, Chad, and Ethiopia sought for debt relief under the common framework, which has yet to be agreed upon, in part because it needs private creditors to join on comparable terms to overcome collective action obstacles and ensure fair burden sharing.
