GOVERNMENT has turned its capital-raising hopes to a pre-Independence overdraft facility with South Africa amid indications that the African Development Bank (AfDB) could cut future financial aid to Zimbabwe over non-payment of debt, Finance minister Tendai Biti has said.
The treasury chief on Wednesday told business leaders in the capital during the inaugural Zimbabwe Independent-Ernst & Young dialogue that failure by the state to settle an estimated US$400 million debt owed to the regional lender would make the country ineligible for lines of credit from the Ivory Coast-headquartered AfDB.
Biti said Zimbabwe could lose significant aid from the regional bank which recently made a commitment to increase lending in the coming five years.
He, however, said treasury would next Tuesday present a “hybrid” debt clearing plan following a growing external debt that was triggered by a decade-long economic recession charecterised by hyperinflation and foreign currency shortages.
Government has a US$7 billion debt owed to international financiers that include the World Bank, the International Monetary Fund, the Paris Club and the AfDB.
“Debt is one of the things that this economy has to deal with if we are to go through the transformative stage of the economy,” Biti said. “The danger about what we owe to IFC is that they are a precondition to accessing cheap financial capital.”
He said government could lose “lots” of post global economic crisis funds due to the growing debt.
“I was very much disturbed….the African Development Bank in the last year alone gave grants and loans of US$9 billion. In the next five years it is going to give loans and grants of US$30 billion and we will not be in the party because we haven’t cleared (the debt). We just heard of a general capital increase of 200% at the AfDB but we are not benefiting”, he said.
Biti said government has taken its begging bowl to neighbouring South Africa in a desperate effort to source funding required to resuscitate the economy. This comes after Western governments refused to extend lines of credit, demanding more democratic reforms from the inclusive government. Zimbabwe requires US$29,8 billion to finance requirements in the three years up to 2012.
“There are two facilities that we are negotiating — one is a line of credit of R500 million and the other is the revival of an old overdraft facility of R2,7 billion that used to exist between Salisbury (now Harare) and Pretoria,” Biti said.
He said following the recent ratification of a Bilateral Investment Promotion and Protection Agreement (Bippa) between Zimbabwe and South Africa by South Africa’s parliament, the former expected more lending from the latter.
Countries with outstanding obligations to AfDB cannot get loan facilities but can get support under the bank’s Fragile States Facility (FSF) geared towards assisting fragile states to consolidate peace, stabilise economies and lay the foundation for sustainable poverty-reduction and long-term economic growth.
The FSF support to eligible regional member countries is via three pillars: the supplemental support window for funding infrastructure, state capacity building and accountability; the arrears clearance window; and the technical assistance and capacity building window.