David Pilling and Andrew England
Zimbabwe is close to putting the final touches to a debt-arrears package that could see it receive an emergency injection of funds from the International Monetary Fund and other multilateral institutions. Dr John Mangudya, the central bank governor who is in Europe to negotiate the financial package, told the Financial Times that the African Export-Import Bank (Afreximbank), advised by Lazards, was arranging a seven-year loan of $986 million to pay back arrears to the World Bank.Harare is re-engaging with Western multilateral institutions after years of isolation, but first has to pay off arrears totalling about $1,8 billion to the bank, the IMF and the African Development Bank.
The loan from Cairo-based Afreximbank appears to have replaced an earlier mooted bilateral loan from Algeria, whose ability to lend has been hit by falling gas prices.
Dr Mangudya said Harare expected to have paid back all its arrears in time for the September board meetings of the IMF and the African Development Bank. He hoped new loans to Zimbabwe could come before the end of the year.
“What we can tell you is that, obviously, if things move well, we’re expecting balance of payments support from the IMF,” he said.
Patrick Chinamasa, Finance and Economic Development minister, said the whole point of the rapprochement, after 16 years of being shut out of international lending, was to receive new funds.
“For us to turn round the fortunes of our country we need new money,” he said, adding that manufacturing “was on its back” and Government finances severely strained.
Some of the money would be put into agriculture, which has been starved of funds, he said.
Dr Mangudya, who joined the bank from the private sector in 2014, said it had been a mistake to throw the bank’s monetary tools “in the river,” shackling Zimbabwe’s fortunes to the rising greenback.
As a result, he said, the country had become highly uncompetitive compared with its neighbours.
The currencies of all the countries in southern Africa, including the South African rand, have fallen sharply against the dollar. Much of the machinery in Zimbabwe, once a regional manufacturing powerhouse, has lain idle for years.
Dr Mangudya said Zimbabwe needed an “internal devaluation” of about 20 percent. In the absence of its own currency, the only way of bringing this about would be to cut wages, although Mr Mangudya was reluctant to put it in those terms.
“When I started my work in 2014, I said we need to go back to basics. People did not listen. I said no salary increase,” he said.
“People were saying this man was mad.”
As a stopgap measure, the central bank plans to issue “bond notes”, a form of currency that will be paid to exporters as an incentive to sell products abroad and earn dollars.
Dr Mangudya said the controversial notes were needed “before the patient goes into surgery”, but were not a long-term solution to Zimbabwe’s problems.
The issue of bond notes — which has been criticised by some Zimbabwean economists — will be capped at $200 million and will only be credited to companies that are earning dollars via exports, he said. — Financial Times.