Loan Facility: Britain to Help Solve Zim Cash Crisis

Britain could take steps to stabilise Zimbabwe’s currency system and extend a bridging loan to help it clear World Bank and African Development Bank arrears, but such support depends on “democratic progress”, Foreign Secretary Boris Johnson said yesterday.

“Those are indeed the things that we would try to do to help Zimbabwe forward, but we’ve got to see how the democratic process unfolds,” he said on the sidelines of an African Union-European Union summit in Abidjan.

Emmerson Mnangagwa was last week sworn in as Zimbabwe’s new President, a few days after Robert Mugabe resigned following pressure from the army, opposition parties and members of the public.

Meanwhile, the World Bank has warned Zimbabwe’s debt-ridden government against using vulture funds to clear the country’s arrears with multilateral financial institutions as Harare engages international lenders to access fresh capital.
Cash Crisis in Zimbabwe

The arrears clearance programme is part of government’s international re-engagement process agreed in October 2015 in Lima, Peru, between Harare and three preferred international financial institutions (IFIs) comprising the International Monetary Fund (IMF), World Bank and the African Development Bank (AfDB).

The Lima Plan is designed to clear Zimbabwe’s arrears to IFIs and secure US$2 billion in new funding.

According to the latest World Bank Economic Update on Zimbabwe report, while the Lima Plan could set the stage for accessing cheap long-term financing, a missing ingredient in the economy, relying on non-concessional funding could perpetuate the country’s debt trap.

“The authorities are committed to expediting the clearance of arrears to other multilateral creditors, including the African Development Bank (US$610 million), the World Bank (US$1,2 billion) and the European Investment Bank (US$212 million), the report reads.

“However, resorting to non-concessional lending to clear arrears in a context of tight liquidity conditions and depleted international reserves could add pressures to an already tight budgetary situation if not accompanied by fiscal, monetary and investment reforms.”

In April, Finance minister Patrick Chinamasa announced that Zimbabwe had secured funding to clear the World Bank and AfDB arrears, raising hopes of fresh funding subject to a comprehensive economic recovery plan and a raft of political, economic, institutional and structural reforms. 

However, he did not disclose the source of the funding, but it is understood that Zimbabwe is on the brink of sealing a syndicated loan from a global commodities firm, regional trade bank and an offshore bank.

Zimbabwe is due to hold elections next year. - Reuters

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