BlackRock, the world’s largest fund manager, has come under pressure to delay demands for debt interest payments from Zambia to prevent the crisis-hit African country’s finances from spiralling out of control.
Anti-poverty campaigners said BlackRock, which manages $10tn (£7.68tn) 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 the asset manager, which holds $220m of Zambian sovereign bonds, could generate $180m for clients, mostly in its index-linked exchange-traded funds, 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%. The southern African country 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”.
A BlackRock spokesperson disputed the charity’s estimates of potential gains, saying there had not been any significant increases in the firm’s holdings of Zambian debt since September 2020 “other than as required to ensure the funds remain near or at the benchmark”.
They added: “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 recognising the difficult circumstances they are facing from the challenges posed by Covid-19.
The spokesperson said 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”.
