Government proposed loan leave a curse on civil servants – PeP – the Mast Online
PATRIOTS for Economic Progress says the government’s proposed loan deduction holiday is more of a curse than a blessing for public servants.
PeP Chairman Sean Tembo believes that the debt swap proposed by the PF government is not only financially unsustainable, but would actually worsen the situation for civil servants in the longer term, as they would be forced to pay. higher borrowing rates at the PSMFC.
Tembo has since called on the government to reverse the decision.
“… We believe that the government’s decision to invoke the so-called debt swap on civil servants will cause more problems than benefits both for the civil servants themselves and for 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, ”Tembo said. “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 Bank of Zambia (BoZ) publication on fees, charges and commissions and a demonstration of the cost of borrowing of 1000K for one year for microfinance institutions in Zambia as of March 31, 2020, PSMFC had one annual effective lending rates of 110 percent. Therefore, by forcing officials to transfer their loans to commercial banks where lending rates are as low as 30 percent, and to transfer them to the PSMFC, the government is worsening the situation of officials rather than their situation. “
He explained that most loan agreements have a standard early settlement penalty clause, which is often disguised as an administration fee.
“Therefore, when the government repays those loans that officials have taken out from various banking and non-banking financial institutions, the question is; who will pay the penalty fees for early settlement? If it is government, that equates to a huge waste of taxpayer dollars, ”Tembo said. “If it is an individual civil servant, it represents an unnecessary financial burden that could have been avoided, and it will end up leaving the civil servants worse than better.”
He said the three-month loan deduction holiday is more of a curse than a blessing.
“The government has offered a three-month loan deduction holiday for all civil servants through PMEC, as this so-called debt swap is being eased, 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, ”Tembo argued. “Indeed, failure to disburse loan deductions by the government on behalf of civil servants will result in a significant downgrade in the credit rating of individual civil servants by the Credit Reference Bureau, which will make the task more difficult, if at all. everything, for those involved. 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 three-month loan repayment holiday starting at the end of July, the government is making civil servants worse off than better. “
He said the government’s proposed debt swap was not only financially unsustainable, but in fact civil servants would be worse off in the long run.
“Therefore, there is no doubt that officials will be financially worse off than better as a result of this proposed debt swap,” Tembo warned.
He said the government’s decision to go into a debt swap amounts to a partial nationalization of the financial services industry.
“We are also of the opinion 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 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 acute since the UNIP era, ”he declared. “The liberalized market economy that the president [Frederick] Chiluba introduced in 1991 was 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 possible closures. “
Tembo advised the government to immediately cancel its debt swap plan because it is not only regressive for the economy, but would make matters worse for officials.
“In fact, given the real substance of this proposed transaction, the phrase ‘debt swap’ attached to it by the government is misleading and does not represent the true nature of the proposed transaction. The most accurate phrase to describe this proposed transaction is “partial nationalization of the financial services industry,” “Tembo said. “And in our opinion, of all the political mistakes that the PF and his government have made since coming to power in 2011, this will prove to be the most serious of all.”