THE ELECTION DEBT SWAP
People should understand this debt swap propaganda by PF:
By Robert Muleya:
Debt Swap, Nationalisation of Credits, or Vulture Fund, or all of them?
I took some time to listen and read on government strategy on debt swap for civil servants who have loans. So here is what my take home.
There are three categories of persons here, i) those who have bank loans but are owed by the government in allowances, ii) those who have bank loans but are not owed by the government and iii) those without loans but owed by the government. For three months, civil servants have been given a moratorium on loans where no deductions will be made because they will be doing conciliation to ascertain who falls in which of the categories.
Government plans are to swap what they owe to the employer with a debt of the employer. For example, if Jones is owed K10,000 in unpaid allowances by the government and Jones has a K30,000 loan with ZCB bank. Government will pay for the K30,000 bank loan, deduct the K10,000. Then for the remainder of K20,000 will be repaid to the government at renegotiated terms of conditions through its microfinance institution. If the amount is less than what government owes you, then government will remain to pay back the difference.
For those who are not owed by government but have bank loans, government will take over that loan and renegotiate the terms and conditions for repayment of the loan. So if Jones has a K30 loan, government will pay the K30 ZCB bank loan and then renegotiate the terms and conditions for the repayment of that loan.
For those with no loans but government owes them, government has a roadmap to settle what is owed to them. The roadmap began with the K200 million disbursed to dismantle such, and there will be double disbursement in the foreseeable future to clear those by December 2021.
To blanket these measure as ‘debt swap’ is unfair and may be misleading because there are three or more things happening here, all of which are not properly explained. Most civil servants seem excited by the ‘debt swap’ thing and almost believe that after the swap, they will no longer have the loans. This seems the smokescreen that this seemingly ‘electioneering’ strategy seems to be riding on. There is an element of a ‘debt swap’ here, there is an element of buying debt here akin to a vulture fund arrangement, and an element of nationalisation of credits by civil servants so that the government can make some profit off it through interest payments.
Let me say a bit more why the so called debt swap is akin to a vulture fund by giving exemplifying how a vulture fund operates. Let us imagine that John owes a bank K20 for a K15 loan he got. A vulture fund buys John’s debt that he owes the bank at say K18 because it is making a once-off payment. And here comes the catch, John is still indebted only that this time instead of paying back to the bank, he will pay back to the vulture fund. And this repayment is at renegotiated interest rates that usually are higher than if John paid to the bank on agreed terms. In this case, John may now have a K25 loan. In many cases, this also means if john would have repaid the debt in 12 months, this time they would repay it in more months than in the initial arrangement because of the renegotiated interest rates and a smokescreen that the vulture uses to make John believe he is actually paying lower amounts…. So instead of K2 deductions, the vulture will encourage 50ngwee deductions for a ridiculously long period of time.
In any case, many deductions made on people’s payslips have not been directed to the lending institutions in the past. In many cases, there is nothing new here but government honouring its obligations of amounts they were supposed to remit to these institutions.
Whatever this strategy may aim to achieve, it will be good that affected persons voluntarily enter such an agreement for these processes to be effected.
- But it seems to be nothing but an attempt to ‘buy votes’ from the civil servants by hoodwinking them into believing that their debts will be paid for by the government without explaining clearly that there is no debt cancellation involved. Civil servants with loans will still be indebted and may have to pay higher rates than are currently doing, and for longer periods than they currently have agreed with lenders but only that this time to the government microfinance institution.