Bernard Mpofu
ZIMBABWE is seeking assistance from France to secure a $1.3bn bridge loan facility from the G7 countries to settle World Bank arrears as the government tries to clear its debt to external creditors.
High-level sources told the Business Times on Tuesday that when Finance Minister Prof Mthuli Ncube met Guillaume Chabert, the French assistant secretary for multilateral affairs, recently, he pleaded with the French to assist Zimbabwe to secure a loan from the G7 countries.
The G7 consists of Canada, France, Germany, Italy, Japan, the UK, and the USA. Being the seven largest advanced economies in the world (outside China), the G7 represents 58% of the global net wealth.
A highly-placed source told this paper: “Minister Ncube implored the French to continue supporting us on the resolution of our debt overhang in their capacity as one of the G7 countries, as we seek a bridge loan facility to clear World Bank’s arrears of approximately US$1.3 billion.”
Another source said: “Chabert said he was the one who brought the issue of the G7 loan on the table and would be happy if the Zimbabwean authorities took it up.”
A bridge loan is a short-term loan typically taken for a period of 2 weeks to 3 years, pending the arrangement of larger or longer-term financing.
Our sources said Chabert advised that the option for a collateralised loan was not the best as it would lead to debt unsustainability.
Ncube could not be reached for comment while questions sent to the French embassy in Zimbabwe were not responded to at the time of going to print.
In the international financial architecture, three MFIs – the International Monetary Fund (IMF), the World Bank Group, and the African Development Bank Group (AfDB) – enjoy what is called “Preferred Creditor Status”, which means debtors who are in arrears to them have to clear the arrears first before the debtors can pay any other creditor.
Even worse, the clearing of the Preferred Creditor Status arrears must be done simultaneously under a Pari Passu rule.
Therefore, if a new issue of shares is said to rank pari passu with the existing shares, then the rights associated with both issues are exactly the same. Which means the Preferred Creditor Status arrears must be paid simultaneously.
Zimbabwe settled its arrears of $107.9m to the IMF in November 2016. But it owes the World Bank $1.3bn, AfDB $680m, and the European Investment Bank $308m. It means if the pari passu rule is not waived via negotiation, Zimbabwe will have to clear both the World Bank and AfDB arrears (totalling $1.980bn) simultaneously.
But Business Times is reliably informed that the government is making efforts to renegotiate the Pari Passu rule as it wants to pay the AfDB first before the World Bank by November next year.
It is also understood that the World Bank has emphasised the need for Zimbabwe to step up its re-engagement efforts with the USA given that the world’s largest economy is the largest shareholder of the World Bank Group, in fact the whole Bretton Woods institutions, which include the IMF.
The USA tops the countries that imposed economic and political sanctions on Zimbabwe in 2001 on account of the government’s land reform programme, which took land from white farmers for redistribution to black Zimbabweans.
Under the American sanctions regime against Zimbabwe known as the “Zimbabwe Democracy and Economic Recovery Act” (ZIDERA) Washington prohibited all the international financial institutions (IFIs) and multilateral financial institutions (MFIs), including the World Bank, IMF and AfDB, from giving new credit to Zimbabwe or forgiving its debt or postponing its debt when it is due.
This explains why the World Bank wants Harare to redouble its re-engagement efforts with Washington DC to make things easier for the World Bank to deal with Zimbabwe.
Since 1999, Zimbabwe has defaulted on its World Bank payments and is no longer eligible to secure cheap long-term funding from the IFIs partly due to its poor credit rating and partly due to the strictures of ZIDERA. The clearance of the arrears and political/economic reforms are seen as critical steps to re-engage with the IFIs and MFIs.
Two years ago, the AfDB agreed to ring-fence its Transition Support Facility Pillar II resources for arrears clearance by Somalia, Sudan and Zimbabwe on a first come, first served basis.
To get new funding from AfDB, Zimbabwe, which is classified as one of the vulnerable economies on the continent with two other African countries, needs to clear its AfDB arrears before December 2020.
