The government should ensure that the terms under which Zimbabwe gets fresh loans do not compound the already unsustainable existing debt burden as that will suffocate the suffering ordinary people, analysts have said. BY MTHANDAZO NYONI
The call by analysts came after the African Export-Import Bank (Afreximbank) revealed plans to avail up to $1,5 billion in credit to Zimbabwe and provide guarantees to foreign investors looking to invest in the country.
Analysts who spoke to Standardbusiness last week said while Zimbabwe needed financial support, it was important to appreciate and acknowledge that the country was already heavily indebted, both to foreigners and locals.
“It is also important to ensure that the terms under which the country contracts new debt, do not compound the already unsustainable existing debt burden,” former Finance minister Simba Makoni, said.
“Further, it is noteworthy that the purposes to which the previous heavy borrowings have been applied, have not brought much benefit to the nation.”
Zimbabwe’s domestic and international debt stands at around $11 billion and the country is failing to clear it because of economic problems.
“Piling new debt on top of unpayable old debt is not a viable solution,” Makoni said.
“Government needs to be transparent, in this case reveal to the nation the term sheet of this new loan, and the criteria and procedures of its disbursement.”
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Asked to provide the term sheet of the new loan, Afreximbank’s head of the communications and events management department, Obi Emekekwue, said: “Unfortunately, we do not share such documents publicly.”
Makoni said much of the recovery could be propelled by domestic actions and resources, supported by generous donations from international friends.
He said economic recovery demanded painful adjustments, such as living within the government’s means, doing only those things that bring maximum benefit to the majority of the people, eliminating corruption, respecting and observing the rule of law, respecting the rights and freedoms of the people, creating an environment that encourages investment by both locals and foreigners, eliminating patronage and freeing the people from the shackles of dependence.
Economic analyst, John Robertson, said government should use the loans secured from the Afreximbank for production purposes, not consumption, to avoid plunging the country into further debt.
“A good principle in business and debt management is that borrowings must always be invested, not spent, and the investment chosen should earn the money needed to repay the debt,” he said.
“If the money is not used to generate more productive capacity or improve the efficiency of the economy, it will simply add to the country’s already very serious debt burden and it will worsen the already very bad credit rating, making additional loans more difficult to find and making the country even less attractive to investors.”
A Bulawayo-based economic and policy analyst, Butler Tambo, said for a battered economy like the Zimbabwean one, the $1,5 billion was not much to solve all the country’s economic problems as it would just be a drop in the ocean.
Tambo, however, said the loan was significant in that it came only two weeks into the Emmerson Mnangagwa’s presidency — a sign that the international community had confidence in his administration.
“These loans will help importers, especially industry players who are into manufacturing to be able to bring in vital raw materials for their production much easily as nostro accounts will now be funded, meaning there won’t be delays in the delivery of raw materials as was the current case as foreign companies would cite failure by the RBZ to pay on time,” he said.
“So if importers’ bills can be paid for promptly, then it will help rebuild industry and help in employment generation and aid capacity utilisation, which stands at below 40% to go up.”
Tambo said channelling the funds into capital projects and the productive sector through banks, especially the mining and manufacturing sectors, would boost production as well as lead to employment creation and revenue generation for the government.
“What is now needed is that the funds be loaned out to industry for them to retool and produce optimally and be competitive so as to boost local demand for locally-produced goods, which should reduce the imports for goods that can be made in Zimbabwe cheaply,” he said.
Robertson said very little detail had reached the public on the Afreximbank loans.
“Some people have been led to believe that the $1,5 billion loan includes the $200 million plus $300 million offered to support the bond note issues and perhaps even includes the $600 million that has been supplied to boost nostro accounts,” he said.
“I have yet to discover whether we have borrowed only $1,5 billion, or whether these are all different loans now totalling $2,6 billion.
“The impact on Zimbabwe will partly depend on how much we’ve borrowed, how soon it must be repaid, how much interest has to be paid, how often and where it will be generated.”
Former Finance minister Tendai Biti, said the loan was not new.
“There is no new money; it’s a recycled old debt. They were just making the headlines. It’s hot air,” he said.
Biti said it was impossible for Afreximbank to lend Zimbabwe $1,5 billion, when its balance sheet was not that strong. The bank’s total assets as at 2015 stood at $7,1 billion.
