Debt swap is even more exposed

It’s just the truth. When banks start suing officials for defaulting on loans, the government will not be involved because it was never part of the contract between the borrower (you official) and the lender (the bank.

Read this carefully👇


Afternoon surveillance team,
As a banker, I would like to add my voice to the freezing of deductions for 3 months by the government for the “so-called debt swap” for Civil Servants.
First of all, I would like to remind the indebted civil servants that the loan service agreement was between them (OFFICIALS) and the Banks. Banks are currently not party to this debt swap agreement.
Second, the government owes Bayport FINANCIAL services of over KK 400 million. This implies that a lending institution cannot afford to suspend loan deductions for 3 months, given the government’s credit rating. In short, the government cannot afford to buy debts (loans) from financial lenders for more than K5 billion when they cannot pay Bayport their outstanding loan deduction deadlines.

So what will the banks do when civil servants’ salaries are credited next week? The banks hold the funds on credit, they will not release the funds until the government has paid the loan repayments through the PMEC system. Having said that, I advise all public servants to be careful with the government. Please don’t borrow on the principle of a debt swap, you will be trapped in a swap of votes.
NB: On Monday, consult your banker on the implication of a debt SWAP, ask in detail if the deductions will really be frozen for 3 months, otherwise it will end in tears


* 1. As Patriots for Economic Progress (PeP), we believe that the government’s decision to invoke the so-called “debt swap” on public servants will cause more problems than benefits for public servants themselves. themselves and the economy as a whole. First, the total amount of money that officials owe various banking and non-banking financial institutions across the economy is over K 6 billion while the net assets of Public Service Micro Finance Company Limited (PSMFC) are lower. to K500 million, which means that PSMFC does not have the financial capacity to buy back the debt that officials owe to various banking and non-banking financial institutions in the economy. *

* 2. Second, it should be noted that despite the creation of the PSMFC in 2013, the majority of officials shunned it and do not borrow from it but prefer to borrow from other banking and non-banking financial institutions because they find the terms and conditions offered by other financial institutions, including loan rates, are more favorable than those offered by PSMFC. It should also be noted that as a microfinance company, the average borrowing rates of PSMFC are much higher than those of commercial banks. According to a publication by the Bank of Zambia (BOZ) on “Fees, Charges and Commissions and a Demonstration of the Cost of Borrowing of KK 1,000 for One Year for Microfinance Institutions in Zambia as of March 31, 2020”, PSMFC had the one of the highest effective annual lending rates at 110%. Therefore, by forcing civil servants to transfer their loans from commercial banks where lending rates are as low as 30%, and to transfer them to the PSMFC, the government is making civil servants worse off rather than worse off. *

* 3. Third, most loan agreements have a standard early settlement penalty clause, which is often disguised as an administration fee. Therefore, when the government repays these loans that officials have taken out from various banking and non-banking financial institutions, the question is: who will pay the penalty charges for early settlement? If it is government, it is a huge waste of taxpayer dollars. If it is an individual civil servant, this represents an unnecessary financial burden that could have been avoided, and it will end up leaving the civil servants in a worse than better situation. *

4. Fourth, the government has proposed a 3-month loan deduction holiday for all civil servants through PMEC, as this so-called debt swap is being facilitated, starting at the end of July. However, this loan deduction holiday proposal is more of a curse than a blessing for public officials, especially those who owe banking and non-bank financial institutions other than PSMFC. This is because the non-disbursement of loan deductions by the government on behalf of civil servants will result in a significant drop in the credit rating of individual civil servants by the Credit Reference Bureau, making it more difficult, if at all, for these civil servants. concerned officials to access loans in the future. Or if they do, these future loans are likely to be at higher borrowing rates due to the downgrade in credit rating. Therefore, by implementing a 3-month loan repayment holiday from the end of July, the government is making civil servants worse off than better.

5. As patriots for economic progress, we are of the opinion that the debt swap proposed by the government is not only financially unsustainable, but will in fact worsen the situation of civil servants in the long run, as they will be forced to pay higher loans. at PSMFC, will have to pay early settlement penalties from their existing financial institutions and will also risk having their individual credit rating downgraded due to government non-payment of loan deductions due to the 3 month loan deduction holiday declared. Therefore, there is no doubt that civil servants will be financially worse off than better as a result of this debt swap proposal.

6. As Patriots of Economic Progress, we also believe that the government’s decision to embark on this so-called debt swap program actually amounts to a partial nationalization of the financial services sector in particular and to the assassination of the private sector in general. It should be noted that the dangers of nationalizing an economy are well documented and still very vivid since the UNIP era. The liberalized market economy that President Chiluba introduced in 1991 has been the greatest blessing this country has ever received. As President Chiluba succinctly said; “it is not the government’s business to be in business.” The role of government is to create an environment conducive to the development and prosperity of private sector enterprises. Since government is by far the largest employer and civil servants constitute the largest business portfolio for individual clients for most banking and non-bank financial institutions, the total effect of the so-called conversion of debt proposed by the government is to partially nationalize the financial services sector. The negative impact on private institutions in the financial services sector will be significant and will manifest itself in job losses and eventual closures.

7. As Patriots for Economic Progress, we feel obligated to advise the government to immediately cancel its debt swap plan, as it is not only backsliding for the economy, but will make public servants worse off than better. . In fact, given the real substance of this proposed transaction, the phrase “debt swap” that the government has attached to it is misleading and does not represent the true nature of the proposed transaction. The most precise expression to describe this proposed transaction is “partial nationalization of the financial services sector”. And in our opinion, of all the political blunders that the PF and his government have committed since they came to power in 2011, this will prove to be the most serious of all.

Thank you and God bless the good citizens of the Republic of Zambia and our struggling nation.



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