ZIMBABWE’S high country risk profile is hampering local banks’ ability to access cheap lines of credit from foreign banks, as well as efforts to strengthen the banking sector. The problem is also complicating interventions to contain currency volatility and the liquidity crunch, while limiting foreign direct investment (FDI), Finance minister Mthuli Ncube says.
Ncube told businessdigest this week that government was working towards improving the country’s risk standing, worsened by decades of misrule and economic mismanagement.
“There are great opportunities for our banks to engage in trade finance and they need to do their bit. But of because there is the issue of the country risk which at the moment is the highest. So that impacts the ability to source credit lines and also the right pricing for credit lines to support trade and so forth,” he said.
Ncube added that Zimbabwe’s economic reform agenda, which he presented at last month’s World Bank and International Monetary Fund spring meetings in Bali, Indonesia, was crucial in the bid to engage international banks. He said the country’s plan to clear the US$1,8 billion World Bank and African Development Bank (AfDB) arrears within 12 months was part of measures to enhance the country’s risk profile.
The risk profile reflects the country’s credit worthiness, or the dangers of investing or lending to a country due to possible changes in the business environment against a backdrop of socio-economic and political factors. Ncube said local banks were highly rated according to international banking standards, but have been grossly affected by the country’s risk profile.
Zimbabwe owes the Paris Club about US$3,5 billion, the World Bank (WB) US$1,4 billion and AfDB US$600 million.
Ncube said repayment or rescheduling of the debt would help improve the country’s credit situation.
“In cases where the transactions can be structured, you basically ringfence the proceeds from exports from supporting an exporter in terms of the credit lines. As long as you can structure it like that, then you remove the risk through the structuring mechanism that is always doable.
“Zimbabwe is seen as a slightly riskier country than other countries in the region. We are working very hard to improve our standing. That is why we are engaging our partners to make sure that we restructure our debt and repay. That will help elevate Zimbabwe’s credit standing going forward,” Ncube said. “There is also another issue of the role of confirming banks; these are banks whose job is to make sure that two traders across different countries are in the right credit standing to exchange goods and services. So that is a missing link on the market. It cannot be filled by Zimbabwean banks alone, but by international banks too. Those global banks are missing, that is where we have Afreximbank to play that role.”