HomeEconomyZim interest rates set to decline after arrears settlement

Zim interest rates set to decline after arrears settlement

ZIMBABWE’S interest rates are expected to trend downwards as the country’s high sovereign risk improves after treasury settles its US$1,8 billion arrears with the World Bank, International Monetary Fund (IMF) and African Development Bank (AfDB), business organisations and analysts contend.

Last week finance minister Patrick Chinamasa met international creditors in Lima, Peru and proposed a plan to clear overdue obligations owed to the IMF, World Bank and AfDB by April next year.

Under the three-pronged plan, Zimbabwe will use a bridge loan to repay the AfDB and the World Bank’s International Development Association (IDA).

IDA is a World Bank arm which helps the world’s poor by providing loans and grants for programmes that boost economic growth, reduce inequalities, and improve people’s living conditions.

Cumulatively, Zimbabwe’s public and publicly-guaranteed debt stood at US$8,4 billion as at end of June 2015.

Zimbabwe also undertook to use a long-term loan from a bilateral lender to repay the World Bank’s International Bank for Reconstruction and Development (IBRD) as well as use its Special Drawing Rights holdings to settle the arrears.

Industry lobby group, Confederation of Zimbabwe Industries (CZI) on Wednesday said the arrears clearance plan was expected to send right signals to the international community and unlock more capital.

“The success in re-engaging with our bi-lateral, multi-lateral creditors and the Paris Club creditors will unlock new level of positive goodwill, cordial perception and ultimately foreign direct investment to the country; and CZI sees this as being very positive and time for business and industry,” the organisation said in a statement.

An unfavourable country risk has seen most banks charging high interest rates, choking most companies of affordable long term capital.

Local banks had up to August been charging interest rates above 20% until the central bank capped the rates at 18% to lower the cost of borrowing and increase lending to productive sectors.

Experts say an improved country risk will lower the cost of borrowing and stimulate economic activity.
Oxford University’s research unit NKC African Economics on Tuesday said Zimbabwe was on track to re-engagement with international financiers.

“Zimbabwe continues on the right track towards clearing its debt arrears, with the past six months arguably seeing more progress than the previous six years”, NKC said in a research note.

“While Zimbabwe has certainly not received an “A+” for its performance under the programme, a strong showing has been recorded nonetheless.”-Staff Writer

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