LIVINGSTONE MARUFU
The Chinese government has asked Zimbabwe to commit to a raft of economic reforms before it can inject a vital $2 billion stimulus package by year end to stimulate Zimbabwe’s weakening economy, currently being plagued by low exports, a weakening fiat currency, rising inflation and a yawning public expenditure, Business Times has learnt.
Government is currently grappling with a wave of price increases that have hit the economy as well as fuel supplies that have been erratic in recent weeks. Official statistics show that expenditure outstripped revenues by $1,4 billion during the first six months of the year.
Earlier this month President Emmerson Mnangagwa took a delegation of highranking government officials to the world’s second largest economy where he held meetings with financiers from that country. The Chinese government pledged $60 billion investment to Africa during the Forum on China-Africa Cooperation.
It is also understood that Beijing has given Harare an end of October deadline to tie up negotiations. But outstanding arrears to Chinese financiers have been one of the sticking points retarding the negotiations. The package, which is expected to tackle the country’s crippling liquidity crisis, comes at a time when the economy is facing serious challenges since the introduction of the multi-currency system in 2009.
Sources also said the central bank chief John Mangudya also met Mnangagwa this week at the RBZ where they discussed several issues ranging from currency, the fuel situation and monetary policy reforms. Essentially, the country has been engaging the international community to improve the relations to clear the over $10 billion external debt to multi-lateral and bilateral creditors to unlock fresh funding required to reboot the economy.
Since the turn of the millennium, Afreximbank has been one of Zimbabwe’s biggest creditors with more still required to finance capital projects.
Mangudya, who was part of the Zimbabwean delegation which recently visited China, confirmed that negotiations were progressing well although he could not divulge more information.
“The $2 billion bailout package from China meant to support the productive sectors, tourism, mining, industry, agriculture and manufacturing, among others, is still on. Negotiations for the package are still on course,” Mangudya said.
“I can’t say the exact details as the deal is still under very confidential terms, but it is our fervent hope that the country may start drawing down from that package in the very near future.”
Sources close to the developments said the $2 billion package would not come on a silver platter as there are a number of reforms that the Chinese want the country to address before receiving the package.
“China, just like any other multilateral institution, needs the structural reforms, ease of doing business alterations and assurances that the country can be able to repay the loan at the agreed time,” a source familiar with the developments said.
“The Asian country doesn’t want to have another Zambia debacle where it was forced to take over some key economic institutions because the Southern African country failed to repay back the loans.
“The money is expected to be released by end of October but only after the country has met the terms and agreements of the package.
“If they agree to these terms the first tranche will be between $250 million and $350 million.”
Zimbabwe’s economic development which revolves around access to capital expects to access part of the $60 billion package for Africa announced by Chinese President Xi Jinping.
Zimbabwe has struggled to access loans from the Industrial and Commercial Bank of China (ICBC) and the Export-Import Bank of China, due to the country’s inability to honour its loan obligations.
It is believed that Zimbabwe owes China Eximbank and Sinosure over $300 million on previous deals, a situation which may be a huge blow for future bailouts.
China has funded the expansion of Hwange Power Station and the $150 million expansion at Victoria Falls International Airport. It will fund the expansion works at Robert Mugabe International Airport.
Zimbabwe has also struck a deal with the Chinese government for the construction of the parliament building in Mount Hampden.
China also funded Kariba South Extension programme for $500 million.
Afreximbank $500 million facility drawdown
In his State of the nation address on Tuesday, President Mnangagwa said the country will begin its $500 million Afreximbank drawdown funding to ease the foreign currency shortages in the economy.
“We will start drawing down the Afreximbank $500 million facility to lessen liquidity constraints in the economy…,” Mnangagwa said.
The funding is required to meet critical obligations such as external payments for raw materials or key industrial equipment and machinery, as well as fuel and medicines among others.
Other than the Afreximbank facility, RBZ is also in the market either scouting for lines of credit or already negotiating fresh support from other institutions.
In total, the country has lined up $880 million lines of credit to ease foreign currency shortages in the economy.
