Monday, February 26, 2024

Debt-Swap by Government is Financially Unsustainable and Amounts to Partial Nationalization of the Financial Services Sector


By Sean Tembo, Presidential Candidate for PeP

1. As Patriots for Economic Progress (PeP) it is our considered view that the decision by Government to invoke the so-called “debt swap” on civil servants will bring about more problems than benefits to both the civil servants themselves and the economy at large. Firstly, the total amount of money which civil servants owe various bank and non-bank financial institutions across the economy is in excess of K6 billion whereas the net assets of the Public Service Micro Finance Company Limited (PSMFC) are less than K500 million, meaning that PSMFC has no financial capacity to buy off the debt that civil servants have with various bank and non-bank financial institutions in the economy.

2. Secondly, it must be noted that despite PSMFC being established in 2013, the majority of civil servants have shunned it and do not borrow from it but prefer to borrow from other bank and non-bank financial institutions because they find the terms and conditions offered by other financial institutions, including lending rates, to be more favorable than those offered by PSMFC. It must also be noted that as a micro finance company, the average lending rates of PSMFC are far higher than those of commercial banks. According to a publication by the Bank of Zambia (BOZ) on “Charges, Fees and Commissions and a Demonstration of the Cost of Borrowing K1,000 for One Year for Micro Finance Institutions in Zambia as at 31st March 2020”, PSMFC had one of the highest effective annual lending rates at 110%. Hence, by compelling civil servants to move their loans from commercial banks where lending rates are as low as 30%, and take them to PSMFC, Government is making civil servants worse off rather than better off.

3. Thirdly, most loan agreements have a standard penalty clause for early settlement, which are often disguised as an administration fee. Therefore, when Government pays off these loans which civil servants have with various bank and non-bank financial institutions, the question is; who will pay the penalty fees for early settlement? If it is Government, then this amounts to a shear waste of taxpayers’ money. If it is the individual civil servant, then this amounts to an unnecessary financial burden which could have been avoided, and it will end up leaving civil servants worse off rather than better off.

4. Fourthly, Government has proposed a 3 months loan-deduction holiday for all civil servants by PMEC, as this so-called debt swap is being facilitated, effective from this July month end. However, this proposed loan-deduction holiday is more of a curse than a blessing on civil servants, especially those who owe bank and non-bank financial institutions other than PSMFC. This is because non-remittance of loan deductions by Government on behalf of civil servants will result in the credit-rating of individual civil servants being significantly downgraded by the Credit Reference Bureau, which will make it more difficult if at all, for these affected civil servants to access loans in future. Or if they do, such future loans are likely to be at higher borrowing rates due to the downgraded credit rating. Therefore, by implementing a 3 months loan re-payment holiday effective from July month end, Government is making civil servants to be worse off and not better off.

5. As Patriots for Economic Progress, it is our considered view that the proposed debt-swap by Government is not only financially unsustainable, but will actually make civil servants to be worse off in the longer term as they will be compelled to pay higher borrowing rates at PSMFC, will have to pay penalty fees for early settlement from their existing financial institutions and also risk having their individual credit rating downgraded due to non-remittance of loan deductions by Government due to the declared 3 months loan deduction holiday. Therefore, there is no question that civil servants will be financially worse off rather than better off as a result of this proposed debt swap.

6. As Patriots for Economic Progress, it is also our considered view that the decision by Government to embark on this so-called debt swap program actually amounts to partial nationalization of the financial services sector in particular and killing of the private sector in general. It must be noted that the perils of nationalizing an economy are well documented and still very vivid from the UNIP era. The liberalized free market economy that President Chiluba introduced in 1991 was the greatest blessing that this country has ever received. As President Chiluba succinctly put it; “it is not the business of Government to be in business”. The role of Government is to create a conducive environment for private sector enterprises to thrive and prosper. Given the fact that Government is by far the largest employer and civil servants constitute the largest business portfolio for individual clients for most bank and non-bank financial institutions, the total effect of Government’s proposed so-called debt swap is to partially nationalize the financial services sector. The adverse impact on private institutions in the financial services sector will be significant, and will be exhibited by loss of jobs and possible shutdowns.

7. As Patriots for Economic Progress, we feel duty bound to advise Government to rescind its proposed so-called debt swap immediately, as it is not only retrogressive to the economy but will make civil servants to be worse off rather than better off. In fact, given the true substance of this proposed transaction, the phrase of “debt-swap” that Government has attached to it is misleading and does not represent the true nature of the proposed transaction. The most accurate phrase to describe this proposed transaction is “partial nationalization of the financial services sector”. And in our considered view, of all the policy blunders that the PF and its Government have made ever since ascending to power in 2011, this will turn out to be the most grave of them all.
Thank You and May God Bless the Good Citizens of the Republic of Zambia and Our Ailing Nation.



  2. Sean I forgive your ignorance. As a born again, I am very understanding and know that we all have a right to Express our views. However, sometimes when good things are done and people still politicise them, I lose my patience and call you what you are, ldlots!!! God forgive me

  3. Well Articulated.. Only danderheard PF supprt can dance to this cheap propagander. The question that civil servant should ask themselves is that ” What happens after three months and does it mean that government will pay for the three months?” Otherwise after three months you still have to pay. Exmple if your loan was finishing august monthend and you get debt-swamp what this means is that after three months you still have to pay your last instalment.

  4. Tembo, a firm believer in the defunct Washington Consensus. This system is frowned upon even in the west. For 20 years, MMD applied this system and all we ended up with is some reserves in our coffers, a strong currency but no development as the whole country depended on UTH, we were heading into a power crisis as we had KK era power plants and population and demand had grown, our roads were potholed, we had a shortage of schools, areas like Shang’ombo we’re in the Stone age because they needed bridges, etc etc. Sometimes, these deliberate policies by governments uplift citizens’ livelyhoods and are necessary. China and even Europe have subsidised their farmers by giving them equipment and seed at almost zero interest rates.

  5. Sean Tembo has ignored to address one fundamental question: what’s the status of civil servants that have borrowed from micro financial institutions? What’s the status of miners that have loans with Stanbic Bank? These institutions employ predatory tactics that leave borrowers perpetually indebted. Some that borrowed for a repayment period of 3yrs for example are still in nkongole 7yrs down the line! Civil servants and their Unions have welcomed this move because they’re the one that feel the pinch. Don’t make comments on national matters just to make you look clever yet the effect of what you say is detrimental to others. This debt swap will also address government’s indebtedness to civil servants. It’s better they close than thrive on the sweat of others

  6. The PF govt does not learn from its various plunders which has constrained the growth of the economy. As Sean Tembi=o has put it, the govt has exposed the various lenders to many risks and most of them will not be able to sustain their operations which will result in scaling on labour and folding up. There is something wrong with our technocrats they have continued misleading PF leaders even as they people of Zambia prepare to kicked out the PF and they contract HH and UPND Alliance to correct the damage and find lasting solutions. The technocrats have been a big let down to the Zambia people. They have kept on creating one problem after another. The debt swap is unsustainable and the question which every reasonable Zambian should be asking from govt loan deduction were being done on…

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