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Government’s debt swap for civil servants ill-timed, CTPD

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The Centre for Trade Policy and Development (CTPD) the ‘infamous’ Debt Swap by government is ill-timed.

CTPD has raised concern over what it described as misgivings about the methodology and strategy to achieve ‘this’ ill-timed and short-term redemption exercise.

The Centre said firstly, the government should inform the nation, the total amount it has not remitted to financial institutions from the deductions it has been effecting through payrolls.

Furthermore, CTPD demands that government releases statistics on the number of civil servants that are indebted and clearly state the measure of vulnerability that was applied to determine the extent of this problem against other pressing needs in the economy.

Read the full statement below:

The Centre for Trade Policy and Development (CTPD) would like to echo its position concerning the issue of the infamous Debt Swap involving the Government of Zambia and civil servants.

This is in a matter where the Government has resolved to implement a debt swap with civil servants on a net off basis.

We do note the intentions by government to help economic agents in stressful times, as in our depressed economy coupled with the COVID-19 situation is commendable.

However, CTPD has a few misgivings about the methodology and strategy to achieve this ill-timed and short-term redemption exercise.

Firstly, Government should inform the nation, the total amount it has not remitted to financial institutions from the deductions it has been effecting through payrolls.

We are aware that Government has been deducting money without remitting to financial institutions, we need to know the total amount of money it has deducted without remitting.

Furthermore, CTPD demands that government releases statistics on the number of civil servants that are indebted and clearly state the measure of vulnerability that was applied to determine the extent of this problem against other pressing needs in the economy such as procurement of medical equipment, oxygen cylinders, ventilators, medicines, PPE, and allowances to COVID-19 frontline workers etc.

Secondly, the bailout plan is questionable as CTPD is reliably aware that government will be using outstanding allowances and perks owed to debt-ridden public service workers to net off debts.

CTPD questions why government has failed to extend these dues to the rightful owners in the past, so that they can organically resolve their debt obligation with respective financial institutions.

While we agree that there is an MoU between government and the financial institutions, when loans are obtained, the legal contract is between the bank and the civil servant, not between government and the bank.

The government’s role is basically deducting and remitting, besides that, confirming employment status.

If this is the case, what will happen if the banks reject governments intentions and prefer to deal with their client?

The financial institutions have already done this through garnishee orders. Some civil servants have experienced double deductions e.g., the Bayport case.

Thirdly, CTPD sees this approach to be selective as it lacks the merit of equitability. There are several Zambian individuals, employed in the private sector or indeed on self-employment, that have debt obligations to financial institutions, and they deserve to be helped as well.

Despite government promising that it is yet to look into this matter of private sector employees, we are of the view that such plans should have been executed as a consolidated and holistically designed plan in the spirit of equity.

If Government has not fully done due diligence, why are they being quick to freeze now? Why didn’t they give themselves the 3 months for doing the reconciliation?

They are saying that they started negotiations over a year ago, if over a year they have not been able to arrive at the figures in question, what guarantee do we have that 3 month will be enough for them to do the reconciliations?

CTPD is worried that payment of civil servants’ dues is happening at a critical time when the country is going to the polls on August 12, 2021.

Moreover, if COVID-19 has been used as reason for the payments, then there is a great mismatch of effective intervention seeing that the pandemic has been with us since March 2020.

It is of great concern to register that utilization of taxpayers’ money lacks prioritization. The majority Zambians who pay various forms of taxes are subsiding the few indebted citizens. The payment of non-cost reflective interest rates by civil servants through the Public Service Micro-Finance Company is unsustainable for a lending business.

This means Zambians will have to sustain the company through taxes, the same taxes that go into government’s bloated wage bill and are already stressed.

Hence applying these funds to redeem civil servants for their personal loan commitments is regrettable.

Furthermore, the government should come out clear whether it is suggesting that no civil servant will be getting loans from lending institutions other than the Public Service Micro-Finance Company.

If that thought is sustained, it has the potential to cause failure of some lending institutions that survive on government salary guaranteed loans in their portfolio. This intervention in the credit market has the potential to cut down jobs in lending institutions.

CTPD is of the view that the supposedly bailout plan predominantly has a non-financial benefit to civil servants, instead it is a short-term arrangement of convenience.

We understand the accrued benefit to civil servants are in the temporal three (3) months repayment breather; transfer of their loan balances to government at supposedly low interest rates; restructured loans with low monthly repayment but with a long repayment period.

We therefore demand that the government comes out clean on this debt refinancing arrangement because such pronouncements have the potential to affect the spending pattern of civil servants in the hope that they will completely be free.

We are on record that we have defaulted on several external debt obligations, what is the guarantee that government will handle civil servants’ debt as per promise it is making?

Government should not claim hero over the matter of the debt swap because we believe that the unpaid allowances and other benefits to civil servants have also been greatly contributing to civil servants’ indebtedness and hardships over the period.

There is need, therefore, to address the root cause pushing civil servants into the debt trap, some of the issues behind the civil servant’ debt burden would include low salaries, lack of access to cheap finance and a generally non-performing economy where the cost of living is high.
Issued by:
Boyd Muleya (Mr)
CTPD Head of Research

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