Zambia’s Outsourcing of Debt Portfolio Management to French Company Raises Questions about Local Expertise Neglect

 

Lusaka, Zambia May 30: The International Monetary Fund (IMF) has maintained that a recent request by the government of Zambia for emergency assistance will only be considered after a series of measures must have been implemented. The IMF indicated that its decision was because Zambia’s public debt was on an unsustainable path and that under current policies the country’s debt is expected to go past 100% of Gross Domestic Product (GDP) in 2020.

Gerry Rice of the Communication Department at the IMF said at a regular press briefing on May 21 said any IMF financial support, including emergency financing is contingent on steps to restore debt sustainability.

…We note the government’s commitment to restore debt sustainability through fiscal policy adjustment and debt management. So, that’s where it stands…I won’t speak for other international institutions, but I know they are as dedicated as we are to resolving problems, and, again, more recently, in the case of Zambia, the authorities have expressed their intention to restructure Zambia’s debt, and, in this context, to hire debt advisors,’’ he said.

Within that framework, Zambia’s Ministry of Finance announced that Lazard Frere SAS, a leading global financial advisory and asset management firm has been hired to advise the government on the liability management of its debt portfolio.

In the wake of that decision, some Zambian economists have welcomed the government’s decision to hire Lazard Frere SAS to offer debt management advice.

Economic Statistician Shebo Nalishebo in his paper dubbed ‘Hiring Lazard’ released to Timescape May 29 pointed out that: “The decision to hire a financial adviser is not one you arrive at lightly. One of the key considerations is that the work ought to be done by independent financial advisers with experience in working with sovereigns. While many of us are armchair advisers, Lazard has had a long history spanning decades of advising cash-strapped governments. Argentina, Greece, Indonesia, Iraq, and Ukraine have turned to Lazard over the years”.

 

Mr. Shebo Nalishebo, Economic Statistician (C) www.thegc.org

 

Mr. Nalishebo adds that the type of restructuring required this time around is debt rescheduling or refinancing which involves a change in an existing debt contract and replacement by a new debt contract, lengthening of maturities of the old debt, preferably with lower interest rates and rescheduling the payment of arrears, if any.

“…I could be wrong, but I do not know of any Zambian financial advisory firm or political party with a track record as Lazard’s to be able to pull off this kind of debt restructuring. Granted, the Movement for Multiparty Democracy (MMD) while in government has a record of having restructured the Highly Indebted Poor Countries (HIPC) debt, that type of debt restructuring is debt reduction or forgiveness…,” he maintained. 

Former Minister of Finance in the MMD government, Peter Ngandu Magande who is credited for seeing Zambia through to the HIPC completion point tells Timescape  that, since the HIPC debt relief, Zambia’s debt structure has changed significantly because most of the debt is non-concessional.

“…I have no experience dealing with such kind of debt, we advised the government to put its house in order and go back to the IMF, but they didn’t listen. The debt we have now is borrowed from capital markets, not institutions and the way to handle it is different from that of institutions. Debt from institutions is easy to handle because people working at some of these institutions such as the IMF are civil servants seconded from governments and are able to relate to our situations…” Mr. Maganda stressed.

He went on to add, however, that other countries in similar situations have had to roll over the debt to another lender that can buy the debt under new conditionalities. Even at that, the former Finance Minister…but you also need collateral for you to do that. The problems we have in Zambia have to do with the management of debt because we seem not to have anyone courageous enough to negotiate and come up with a debt sustainability plan that the IMF is demanding for…’   

Weighing in on the government decision, Prof. Oliver Saasa, an economist, held the view that under normal circumstances when a country does not have the required capacity to manage its debt profile, there is no harm in outsourcing. He added that the quality of proposal presented to the multilateral institutions should be of quality.

Prof. Saasa who is also Premier Consult Limited Managing Consultant told Timescape that he was saddened that the government did not consult with the private sector which is a major stakeholder in ensuring that a bankable document based on proper estimation is presented to multilateral institutions. He emphasized that what was also important was the quality of proposals made to these institutions.

 

Prof. Oliver Saasa (C) Zambia Chamber of Mines

 

“…we seem to have capacity challenges within the government to come up with bankable proposals of what ought to be done. And as the private sector, we keep saying talk to us, so that you know what you are going to work with. So, when we hear that our government proposal to the IMF is below average, we are not surprised because the government cannot guess what is required. Apart from capacity, there is also the failure to use eternal capacity; government cannot dialogue with its citizens…,” Prof. Sassa concluded.

Looking at it from a different perspective, Tounkara Maka, a lecturer at the University of Zambia opined that strong negotiators and debt management advisors are those who would have to act in Zambia's best interests, questioning that: “if not Zambian intellectuals and experts, then who? The use of foreign negotiators sends a bad signal to international players that the country local lacks capacity to negotiate its own debt portfolio or restructure our debt liability…”

The University Don told Timescape that to improve its debt sustainability profile, the government would need to be transparent in terms of how it is making use of debt monies: “…We need the IMF package; it’s the best and cheaper alternative to other sources. Depending on how we position ourselves we can get it, but the government needs to show that debt is being spent on productive assets as opposed to consumption…”

Economist Noal Nkhoma took issues with Mr. Maka’s position,  saying government ‘s move was right because Lazard was highly reputable with a proven track record of assisting countries in economic and financial challenges like Zambia: “…the French company Lazard frères has the financial capabilities, profile and pedigree to do a good job to restructure Zambia’s external debt”.

Zambia picked Lazard Frere from a lot of six companies that tendered for the job: Newstate Partners, Potomac Group, Deustche Bank and Rothschild & Company, Absa Bank and Barclays Bank PLC, and White Oak Advisory Limited. Lazard Frere will be paid USD5 million to restructure Zambia’s USD11 billion foreign debt over a three-year period, and this translates to 0.05% of the entire foreign debt portfolio.

 

In Africa, Lazard has consulted with countries such as Ivory Coast and Mozambique, among others and enabled them to come out of their debt crises. In 2019, Egypt looked to Lazard to help promote investment opportunities in the country.