The world’s largest fund manager refuses to delay or reduce payments on Zambia’s debt, anti-poverty campaigners said
The world’s largest fund manager, BlackRock, has come under intensified pressure to delay demands for debt interest payments from the crisis-hit Zambia. Anti-poverty campaigners urged the asset manager to delay the demands on the African country to prevent its finances from spiraling out of control.
Unlike governments and international agencies that hold Zambia’s debts, BlackRock, which manages $10 trillion (£7.68tn) of assets, was on the list of private-sector lenders that had refused to reduce the interest rate or delay payments on Zambian bonds, anti-poverty campaigners said.
If the debts were paid in full, the asset manager, which holds $220m of Zambian sovereign bonds, could generate $180m for clients, mostly in its index-linked exchange-traded funds, the charity Jubilee Debt Campaign said it estimated. The charity commented:
“This would represent a 110% profit on what we estimate BlackRock paid for the debt.”
Zambia, whose social and health care spending has been cut by a fifth in the past two years to balance its budget, has seen its debts increase in recent years to fund infrastructure projects, many to assist the country supplement drought-affected hydropower plants.
Although the country is almost self-sufficient in electricity because of the solar projects, the Covid crisis and the high cost of borrowing have crippled its finances.
Commitments to end fuel subsidies to households and businesses have been linked to additional loans from the International Monetary Fund (IMF), pushing the inflation rate above 20% last year.
Looking at Zambia’s external debt, 18% is owed to multilateral institutions, 22% to China, 46% to private lenders, and 8% to other governments. The Jubilee Debt campaign said that government lenders, including China, have agreed to a longer debt repayment schedule but private lenders, including banks, have so far resisted.
Having already defaulted on loans from commercial lenders, the Zambian government risks becoming a pariah on international debt markets as it could default on further loans.
Zambia’s bonds have had an average interest rate of 8.1%, and an average face value of 59 cents on the dollar since the start of the pandemic in early 2021, the charity estimates. At the start of 2021, the southern African country applied for a new G20 debt relief scheme. However, it has not yet had any debt canceled.
BlackRock had bought Zambian bonds at rock-bottom prices when it was clear the country was already in trouble, Tim Jones, the Jubilee Debt Campaign’s head of policy, said. He added:
“It is unfair for BlackRock and other lenders to make massive profits out of Zambia’s debt crisis. If BlackRock refuses to cancel Zambia’s debt, then the UK and other G20 countries should support Zambia to stay in default on BlackRock.”
A member of the Zambia Civil Society Debt Alliance, Isaac Mwaipopo, added:
“Zambia’s debt crisis is preventing people from getting access to healthcare, education, and other social services.”
“We urgently need all of Zambia’s lenders, including BlackRock, to agree to cancel debt so we can recover from the Covid pandemic and the economic crisis we face. Loans were given at high-interest rates, and have been trading at low prices, so it is only fair lenders agree with significant debt cancellation, rather than making mass profit out of the Zambian people.”
Later this month, negotiations on the debt restructuring are due to take place. On April 20, during the IMF spring meetings, G20 finance ministers are scheduled to meet to discuss the progress of the debt relief scheme, known as the common framework.
Last year, Chad, Ethiopia, and Zambia applied for debt relief under the common framework, which the IMF said has yet to be agreed upon, partly since it needs private creditors to participate:
“On comparable terms to overcome collective action challenges and ensure fair burden-sharing”.
While saying that there had not been any significant upturns in the firm’s holdings of Zambian debt since September 2021 “other than as required to ensure the funds remain near or at the benchmark”, a BlackRock spokesperson contested the charity’s estimates of potential gains.
“The money invested in bonds by asset managers is predominantly the money of ordinary people saving for retirement. None of the money is the asset manager’s. Any decision on restructuring these bonds must therefore be balanced against the duty of the asset manager to protect the savings of the millions of people whose money was lent to these countries, while at the same time recognizing the difficult circumstances they are facing from the challenges posed by Covid-19.”
The firm had “no discretion” to sell bonds held in index funds, “so it is in our clients’ interests for these countries to thrive and succeed”, the spokesperson said.