HomeBusiness DigestZim seeks US$1,8bn gap loan

Zim seeks US$1,8bn gap loan

The Zimbabwean government has an uphill task to raise US$1,8 billion from financial institutions or development partners across the world by year-end as part of efforts to unlock fresh funding from the International Monetary Fund (IMF), World Bank and the African Development Bank (AfDB), businessdigest has learnt.

Taurai Mangudhla

Although the AfDB has committed to a financing scheme to help clear government’s arrears by December 2016, Zimbabwe wants to make good on the deal, together with two other related transactions to pay arrears owed to the IMF and the World Bank, by year-end.

The Ministry of Finance said at the end of the first quarter of this year that Zimbabwe owed US$1,4 billion to the World Bank, US$639 million to the AfDB and US$120 million being part of the country’s public and publicly guaranteed debt of US$8,4 billion as at end June 2015.

A senior official in the Ministry of Finance said “the RBZ (Reserve Bank of Zimbabwe) is currently running around to raise these funds”.

Part of the money, US$601 million, will be in the form of a bridge loan to enable Zimbabwe to clear US$601 million it owes the African Development Bank (AfDB). The AfDB will then refund Zimbabwe the US$601 million within about 48 hours after full payment according to government sources close to the debt management scheme.

“The correct position is we should first find a bridge finance to pay AfDB US$601 million. It is only after that payment that AfDB would then reimburse us by so doing clearing the arrears,” said the official. “After the arrears are cleared, then a new programme for funding will come. The issue is the three institutions — IMF, World Bank and AfDB — would need to be treated equally. That’s why government is coming up with a strategy for debt arrears clearance.”

Investment literature describes a bridge loan, also known as gap financing, interim financing or swing loan, as short-term loan that is used until a person or company secures permanent financing or removes an existing obligation. This type of financing allows the user to meet current obligations by providing immediate cash flow. The tenure of the loans varies per jurisdiction and has relatively high interest rates and is backed by some form of collateral such as real estate or inventory.

The official said government’s biggest headache at the moment is raising an additional US$1,2 billion. About US$1,1 billion will be used to pay part of the World Bank’s arrears.

“The US$600 million is easy to find because it can easily be repaid but the problem is with the US$1,1 billion owed to the World Bank because this money will be a permanent payment which means we require US$1,1 billion long-term funding of some sort to make this payment. Where will we get that money?” asked the official. “We have to treat the three institutions AfDB, IMF and World Bank equally without appearing to be biased so that we start getting funding. If we make a payment to AfDB, we have to do so to the others. It is almost a done deal between ourselves, IMF and AfDB, but the US$1,1 billion to the World Bank is the challenge.”

Government is said to be acknowledging the difficulty associated with raising such funds given a general bad economic climate characterised by lack of rule of law and policy inconsistency.

Zimbabwe, the official said, will next month table its debt clearance strategy at the IMF/World Bank annual meetings in Lima, Peru, with hopes of securing support from the three lending partners.

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