An economic commentator, using the Twitter handle, @baba_nyenyedzi, said Zimbabwe’s growing debt to the African Import-Export Bank, also known as Afreximbank, proves that the sanctions have not prevented the country from tapping into international capital.
In a Twitter thread, the analyst said that the economic mismanagement and accelerated corruption after the November 2017 coup will push Afreximbank and the Chinese to demand that Harare reform so that it can successfully repay debt. ready. Read the thread below:
Zimbabwe – Afreximbank loans
On February 12, 2021, constrained by a court decision, the MOF published in the Official Journal the loans taken out by the RBZ that it guaranteed.
It is very clear why RBZ & GOZ have kept these loans a secret to the point of leading their apologists to deny their very existence.
For example, over the past 3 years it has been pointed out that;
(a) RBZ is involved in quasi-fiscal activities
(b) GOZ cash has no surplus
These two points are linked. RBZ comes directly under the armpit of the Minister. RBZ has taken over the treasury responsibilities and its deficits.
RBZ losses are directly treasury losses and must by law be included in consolidated income and expenditure. It never happened, so the right hand claimed it was clean, while the stolen goods were in the left hand all the time.
The Gazette is revealing in 3 distinct ways;
(i) Zim’s sanctions do not affect its ability to borrow and move money internationally
(ii) Interest on loans is greater than 10% per annum
(iii) Zim is in the debt trap
RBZ’s total foreign debt stood at US $ 5 billion in September 2020. 80% of this debt was assumed after the November 2017 coup. OFAC reportedly saw and approved these transactions, including at whenever Zim made any interest payments.
Afreximbank’s $ 1.4 billion had the GOZ guarantee. Which means that GOZ was a direct party to the transaction. At no time did OFAC raise the red flag. Or stop the transaction altogether. It is very clear that Zim’s sanctions do not affect his ability to deal with the world. It is also not the ability to borrow. There are apparently many international lenders for Zim.
Chinamasa’s Lima Plan of 2016 comprehensively addressed political and institutional reforms before tapping into international markets. Without reforms, immediately after a coup, GOZ began borrowing without any guides and none to stop debauchery.
It is a hard lesson for Zim and for Afreximbank and other lenders (including China) why Zim is in desperate need of deep political and institutional reforms. It is for the good of the creditors. The Treasury’s claims over the surplus were not aimed entirely at Zimbabwean ears but at foreign lenders.
Afreximbank’s first loan was granted on December 27, 2017. A 3-year loan that was due at the end of 2020.
Was it paying?
All the evidence suggests otherwise.
Zim has ZERO reserves. The 2020 budget did not provide for a sinking fund.
Afreximbank knew that RBZ had no reserves (see photo, the position of Zim’s reserves is at the bottom of the table)
Has the loan been renewed?
The loans suggest a lump sum payment at the end of the loan term and have not been amortized. If the loan were to be amortized, the RBZ monthly reports would show it.
The terms of the loans are onerous. In December 2017, LIBOR was 2%.
RBZ’s own laws categorically prohibit loans greater than LIBOR plus 7% without the express approval of RBZ. This is the reason for institutional reforms. Currently, the regulator approves its own loan interest exemptions.
2% LIBOR. Interest 6.5%. other charges 3.75%. The total interest for year 1 is 12.25%. Above the RBZ’s own rules.
It is a devastating revelation. Most economists had assumed interest to be less than 4%. What Afreximbank normally charges.
Zimbabwe is very profitable for Afreximbank. In its September 2020 results, interest and similar income amounted to US $ 700 million. On average (10% per year) over $ 1.4 billion, Zim pays $ 140 million per year.
This is 20% of Afreximbank’s interest income.
If Zimbabwe pays 10% on its RBZ debt ($ 5 billion), that equates to $ 500 million in interest per year.
This represents 20% of the GOZ 2020 budget expenditure. 25% of the turnover.
Debt has grown through capitalization of interest and not necessarily new debt.
In theory. A debt trap occurs when interest on loans (i) exceeds growth in GDP (g).
This means that interest payments become an albatross for any growth. Debt is growing exponentially. The RBZ lends 10% interest when the economy is in decline by -15% is a debt trap.
What does this mean for Zimbabwe?
Minister Mthuli is simply preparing Zimbabweans for the inevitable debt recovery bill.
This will officially add $ 5 billion to the country’s outstanding external debt of $ 9 billion.
Ps. $ 3.5 billion farmers compensation not yet official
The good news is that Afreximbank and Chinese creditors will now be at the forefront of calling for reforms.
The smuggling of gold and its quantum is NOT a coincidence. This is to avoid formal international channels where creditors have stop orders against Zim’s exports.
The bad news is that the ruling class can survive on rent from the extractive industry. Especially during a commodity boom. Political scientists have pointed out that the ruling elite will not reform out of power.
There is no credible reason why the ruling elite should reform.
Sanctions did not prevent Zim from exploiting international capital.
Economic mismanagement and corruption accelerated after the November 2017 coup. Reverse GNU gains.
ALL creditors want reforms.
The commodity boom and corruption offer a way out for the ruling elite.
… I think parliament has to play a role. So far, it is a dereliction of duty.
In the 2013 constitution, the RBZ was given carte blanche, with Parliament empowered to oversee a new RBZ law. Nothing happened.