BlackRock, the world’s largest fund manager, has come under pressure to delay demands for debt interest payments from Zambia to prevent the country’s finances from spiralling out of control.

Anti-poverty campaigners said BlackRock, which manages $10tn of assets, was among the private sector lenders that had refused to reduce the interest rate or delay payments on Zambian bonds, unlike governments and international agencies that hold the country’s debts.

The charity Jubilee Debt Campaign said it estimated BlackRock, which holds $220m of Zambian sovereign bonds, mostly on behalf of clients in its index-linked exchange-traded funds, could generate a $180m profit if the debts were paid in full.

“This would represent a 110% profit on what we estimate BlackRock paid for the debt,” the charity said.

Zambia, which has cut health and social care spending by a fifth in the past two years to balance its budget, has seen its debts soar in recent years to fund infrastructure projects, many to help the country supplement drought-affected hydropower plants.

Solar energy projects have made the country almost self-sufficient in electricity, but the high cost of borrowing and the Covid crisis has crippled the country’s finances.

Further loans from the International Monetary Fund (IMF) have been tied to commitments to end fuel subsidies to households and businesses, pushing the inflation rate above 20% last year.

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 the government lenders to agree a longer debt repayment schedule that private lenders, including banks, have so far resisted, the Jubilee Debt campaign said.

The Zambian government has already defaulted on loans from commercial lenders and could default on further loans, risking it becoming a pariah on international debt markets.

Since the start of the pandemic in early 2020, the charity estimates Zambia’s bonds have had an average face value of 59 cents on the dollar, and the average interest rate on its bonds is 8.1%.

Zambia applied for a new G20 debt relief scheme at the start of 2021 but has not yet had any debt cancelled.

Tim Jones, the Jubilee Debt Campaign’s head of policy, said BlackRock had bought Zambian bonds at rock-bottom prices when it was clear the country was already in trouble.

He said: “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.”

Isaac Mwaipopo, a member of the Zambia Civil Society Debt Alliance, said: “Zambia’s debt crisis is preventing people 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 significant debt cancellation, rather than making mass profit out of the Zambian people.”

Negotiations on the debt restructuring are due to take place later this month.

G20 finance ministers are scheduled to meet on 20 April, during the IMF spring meetings, to discuss the progress of the debt relief scheme, known as the common framework.

Zambia, Chad and Ethiopia applied last year for debt relief under the common framework, which the IMF said has yet to be agreed, partly because it requires private creditors to participate “on comparable terms to overcome collective action challenges and ensure fair burden sharing”.

Rating agency Fitch has warned that disagreements and prolonged negotiations with some official and private creditors over Zambia’s debt might push the eventual IMF deal into 2023.

It says the timelines issued by the Zambian government for the final IMF approval within first half of 2022 is optimistic.

It says Zambia has just conducted an IMF/World Bank Debt Sustainability Analysis (DSA) which will be the basis of discussions within the creditor committee.

The rating agency added that the outcome of the creditor committee will be enshrined in a memo of understanding (MOU) outlining a proposed debt treatment.

“Zambia will then approach its private creditors to negotiate debt treatment on comparable terms. The government’s announced timeline anticipates the formation of the creditor committee, agreement with private creditors, and final IMF Board approval of the ECF all within 1H22. Fitch believes that this timeline is optimistic,” it said in a note to investors.

It stated that disagreements among official creditors or prolonged negotiations with private creditors could push the date of an eventual agreement back into first half of 2022 or 2023.

“Fitch believes that a sizable debt treatment will be necessary to bring Zambia’s debt to a level deemed sustainable by the IMF and Zambia’s creditors. Total public sector stood at 108% of GDP at end-2021 and we expect it to fall below 100% by 2023, as Zambia narrows its primary deficit. However, we forecast debt to increase to just under 500% of government revenue in 2022, above the ‘B’/’C’/’D’ median of 328%.Of this amount, USD14.7 billion (59% of GDP) is external debt,” it said.

It says, “Eurobonds account for USD3 billion of Zambia’s debt, a high percentage of debt compared to other countries going through CF restructuring. The possibility of Eurobond holders rejecting the MOU’s terms brings risks to the timeline. Zambia has an additional USD4 billion in contracted but undisbursed debt, which is not included in the debt stock. Fitch expects about half of this contracted debt to be negotiated away.”

The ‘CCC’ rating reflects that the government has continued to service its local-currency debt and has not announced any plans to restructure domestic debt as part of the CF.

Domestic banks and other institutions hold the majority of outstanding domestic debt; although the stock of non-resident investment increased in 2020 and 2021 and is now 28% of the total.

A domestic debt restructuring could create additional liabilities to the government, making it counterproductive.

However, the domestic debt stock is large at ZMW197 billion (48% of GDP). The size of the necessary overall debt treatment, as well as the size of the necessary fiscal adjustment, mean that sizable risks to domestic debt will persist.

And Fitch Ratings has affirmed Zambia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘RD’ and has also affirmed the Long-Term Local-Currency (LTLC) IDR at ‘CCC’.

“The ‘RD’ rating reflects that Zambia has not serviced the bulk of its outstanding external debt since failing to make a Eurobond interest payment in October 2020. Subsequently, the government announced that it would stop servicing all of its external debt, excluding some priority project loans, and applied for debt relief under the G20 Common Framework (CF). In December 2021, the government reached staff-level agreement on an IMF programme, which clears the way for convening of an official bilateral creditor committee to discuss potential debt treatments.”

It says the affirmation of Zambia’s ‘CCC’ LTLC IDR reflects that the government continues to service its local-currency debt.

And on the foreign reserves, Fifth says a combination of higher copper export receipts and financial account inflows have improved Zambia’s international reserves position.

“We forecast reserves to reach USD2.9 billion, or 3.6 months of current external payments (CXP) at end-2022, up from 3.4 months of CXP at end-2020. If the IMF Board approves the ECF, disbursements from the IMF and other multilateral lenders would further bolster reserves.”

“However, higher import prices will contribute to a narrowing of the current account surplus in 2022 and the eventual resumption of debt servicing will contribute to falling reserves in 2023.”

Fitch expects real GDP growth of 3.3% in 2021 and expect medium-term growth of approximately 3%.

“Inflationary pressures will increase along with high global commodity prices, as the government has ended its explicit fuel subsidy as part of its IMF programme. However, fuel prices are still regulated by the government and the government could delay hiking fuel prices, with resultant losses falling on its balance sheet.”

It says the government will also face higher costs for its fertiliser subsidies through the Farmer Income Support Programme.

“The need to tighten monetary policy would put additional pressure on domestic government borrowing. The government’s increased call on domestic debt markets have crowded out private sector credit, which we forecast to remain in negative”.

At least 12 unionised workers at Zampalm Company Limited in Kanchibiya district in Muchinga province, have been fired for alleged gross misconduct and inciting over 600 other workers to participate in strike action last month.

The development has been confirmed to the Zambia News and Information Services (ZANIS) by Zampalm Union Chairperson, Alex Mukuka, who is among the fired employees.

Mr Mukuka said the 12 unionised workers were fired around 11:30 hours on Saturday.

He expressed sadness that management at the company decided to fire the workers instead of engaging in dialogue to settle the matter amicably as promised.

Mr Mukuka said over 600 Zampalm workers went on six-day strike action last month to press for improved conditions of service.

He explained that the workers resolved to go on strike demanding a 100 per cent salary increment, payment of their gratuity and calling for the dismissal of Zampalm Company Limited General Manager, David Kasubakanya among other demands.

Mr Mukuka has since called on the Department of Labour in the district to intervene in the matter before legal action is taken against Zampalm management.

“The remaining Zampalm workers are now working in fear as they do not feel protected by their management,” said Mr Mukuka.

And Sylvester Mwelwa, one of the fired workers, has described the action by management as unfortunate.

Mr Mwelwa has since appealed to relevant authorities to help the workers be reinstated saying the dismissal is unjustified.

He said rushing to fire the workers will not solve the problems that Zampalm Company Limited is currently facing.

“We decided to dialogue with management after a six-day strike action but it is very sad that management has decided to fire us,” he said.

And when contacted for a comment, a Senior Zalmpalm Management employee, who sought anonymity, confirmed that 12 workers have been fired but declined to comment further.

Muchinga Province Principal Labour Officer, Moses Chatepa, also confirmed receiving a message on the dismissal of 12 Zampalm Company workers.

Mr. Chatepa said a detailed report will be issued soon.

“We have received the message on the firing of 12 Zampalm workers in Kanchibiya and will investigate the matter,” he said.