Opaque loans bad for governance

THE global economy has been plunged into a massive recession and, for Zimbabwe, the long winter of despair has just begun. World economic projections paint a gloomy picture of shrinking gross domestic product, huge fiscal deficits, weakening currencies and economic dislocation.

It was interesting to listen to Finance minister Mthuli Ncube explaining how he expects to find the money to finance the government’s ZW$18 billion Covid-19 stimulus and rescue package.

The Treasury chief revealed that Zimbabwe has so far received US$120 million in grants. He went on to express hope that the country would clinch an African Development Bank (AfDB) finance facility in the range of US$250 million and US$300 million to support exporters.

From a governance perspective, Zimbabwe’s opaque AfDB loans are problematic. One of the tenets of clean banking is that lenders should show ethical conduct in their dealings with borrowers.

In terms of the Zimbabwean constitution and public finance management law, the government has no authority to unilaterally contract public debt and publicly guaranteed debt without the express authorisation of Parliament.

These financial deals are often in the form of structured loans. The opaque external loans are collateralised by mineral exports and tobacco exports. Opaque loans are making it extremely tough for Zimbabwe to attain debt sustainability.

Interestingly, the AfDB’s latest appraisal of Zimbabwe’s macro-economic performance reads like a case study in economic diplomacy. Reading the assessment, one gets the distinct impression that the bank is very cautious not to offend the government. It tiptoes around the important issues, resorting to euphemism and the usual platitudes.

The AfDB, in the outlook, says it expects “a quick turn around in the real sector” in 2020-2021. Even though we acknowledge that the report was written before Covid-19 plunged the world into turmoil, this level of optimism is both astonishing and perplexing. How could anyone realistically expect Zimbabwe’s real economy — a term which broadly refers to the flow of goods and services rather than financial services — to chart a new path, yet nothing on the ground has changed to justify this expectation?

The AfDB is patently aware of the dire state of the macro-economic fundamentals. Public debt remained above the statutory target of 70% of GDP. In June 2019, external debt constituted 87% of the debt stock. More than 60% of the population last year fell below the poverty datum line.

AfDB is not the only financier mired in controversy. Afreximbank deserves scrutiny, too. Parliament has an important responsibility to play its constitutional role of holding Zimbabwean leaders and bureaucrats accountable.

We are alive to the fact that borrowing can enhance a nation’s capacity to deliver on socio-economic development, but we dare not forget that heavy indebtedness can also precipitate structural vulnerabilities if the resultant debt burden is handled imprudently.

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