British bank rescues Mugabe ...
offers US$262 million bailout package
BRITISH multinational banking and financial services group Standard Chartered Bank Plc — previously embroiled in controversial sanctions investigations in the United States and freezing of capital investment in Zimbabwe — has unexpectedly agreed to shell out US$262 million to bail out President Robert Mugabe’s bankrupt regime.
Only a few years ago, it would have been unthinkable for Standard Chartered (Stanchart) — which has its primary listing on the London Stock Exchange and is a constituent of the FTSE 100 Index — to rescue Mugabe’s government due to European Union (EU) targeted sanctions on Zimbabwe. The EU has now lifted most of the sanctions except on Mugabe and his family.
Confidential documents seen by the Zimbabwe Independent — which has been exclusively reporting on the issue since last year — shows Stanchart, which made about US$15 billion in revenue last year, has agreed to help raise US$1,8 billion to clear arrears to international financial institutions (IFIs) for Harare to secure US$2 billion in fresh funding.
Documents show the British bank, which operates a network of over 1 200 branches and outlets across more than 70 countries around the world, including Zimbabwe, will pay half of the US$524 million — US$262 million — which Harare has to settle to the African Development Bank (AfDB).
The African Export and Import
Bank (Afreximbank) will pay the balance under a refinancing scheme to clear part of the over US$600 million owed to the AfDB. Out of this, the Zimbabwe government will pay US$82 million on its own.
Zimbabwe is frantically looking for US$1,8 billion under a plan adopted in Lima, Peru, last year in October, to clears arrears to preferred IFIs — the International Monetary Fund (IMF), World Bank and the AfDB — to clear its arrears and unlock US$2 billion in new funding.
Currently saddled with a debt overhang of US$10,8 billion accrued from both public and private sector borrowing, Zimbabwe’s failing economy has plunged deeper into recession since 2013.
The country’s debt arrears amount to US$5,6 billion split between multilateral creditors (US$2,2 billion), the Paris Club, an informal grouping of creditor nations (US$2,7 billion), and non-Paris Club creditors (US$700 million). Zimbabwe owes the Paris Club about US$6 billion. Arrears contribute about US$1 billion. Arrears to non-Paris Club creditors amount to US$476 million.
Although it failed to clear its arrears by June as initially agreed and to meet the required reform benchmarks, Zimbabwe has already cleared arrears with the IMF after paying US$108 million on October 20 using its Special Drawing Rights holdings with the fund.
The payment of IMF arrears enabled the fund’s executive board to lift on November 14 the declaration of non-cooperation, fully reinstate the provision of technical assistance and restore Zimbabwe’s eligibility to the Poverty Reduction and Growth Trust (PRGT) — all punitive measures imposed on Harare due to the accumulation and non-payment of arrears.
The Zimbabwe issue is expected to be discussed at the AfDB December 7 board meeting amid increasing pressure for it to be postponed to next year as the country seeks a rollover of the AfDB’s Pillar II Fund under the Transition Support Facility — which expires on December 31 — to repay its arrears in 2017.
“A significant portion due to AfDB and Africa Development Fund totalling about US$627 million will be refinanced through a bridge facility whereby the AfDB’s Pillar II Fund under the Transition Support Facility of about US$548,8 million will be utilised to repay the bridge facility almost simultaneously to the lenders’ approval and disbursement of facility proceeds on behalf of Zimbabwe,” one confidential document says. “In this regard, Standard Chartered shall co-finance the bridge facility with Afreximbank.”
On the World Bank’s US$1,161 billion arrears, Afreximbank will pay half of the debt while three banks coordinated by American advisory firm Lazard Ltd will pay the balance. After failing to get bridge finance from Algeria and other countries, Zimbabwe turned to the New York-based Lazard, a financial advisory and asset management firm which offers strategic advice on financial matters, including capital raising.
The New York Stock Exchange-listed company has reportedly arranged for finance to clear half of the World Bank arrears from East Asian, Russian and Middle East financial institutions. International banking sources say some big Western financiers refused to bail out Zimbabwe because of the country’s low credit rating and high political risk. Documents show that IFIs are however keen on the bailout because they want to put their books in order in what they view as a win-win situation.
Re-engagement with the international community, IFIs and bilateral creditors will enable Zimbabwe — which now has a reprieve from the IMF — end almost 18 years of lack of access to finance due to an accumulation of arrears and sanctions.
Documents say once the arrears are cleared and reforms are implemented, the country stands a chance of accessing fresh concessionary funding from IFIs.
Specifically, the IMF will be able to offer a balance-ofpayments support provided a credible and practical new economic programme — not the utopian and discredited ZimAsset — is in place. The World Bank will provide budget support and the AfDB infrastructural development funding, starting with agriculture and energy.
Zimbabwe will also further engage the European Investment Bank to agree to agree on an arrears clearance plan. It will also engage the Paris Club — an informal group of official creditors — and non-Paris Club or bilateral creditors on arrears.
“Government will seek official bilateral creditors’ support to obtain debt treatment at the Paris Club. The support will be crucial to supplement the financing expected from the IFIs to back Zimbabwe’s reform agenda,” another document says.
Of late, letters have been flying between the IMF, World and AfDB in preparation for the AfDB December 7 board meeting in which Zimbabwe is expected to be on the agenda despite pressure for the issue to be postponed to next year pending reforms.
Notwithstanding settlement of PRGT arrears and removal of remedial measures, the IMF says future financing would also require Zimbabwe to comply with its other applicable policies, including to resolving its arrears to AfDB, the World Bank, and other multilateral institutions; bilateral official creditors, and external private creditors; and implementing strong fiscal adjustment and structural reforms to restore fiscal and debt sustainability, and private sector viability.
The IMF says a step-up to a comprehensive and deep economic policy adjustment agenda will be critical for Zimbabwe to address economic challenges. It wants a sustainable fiscal position which requires a significant reduction in the wage bill, while rebalancing the budget toward much-needed infrastructure investment and social outlays to stimulate growth.
Due to the relatively high tax-to-GDP ratio, the IMF wants a refocus on base-broadening, increasing non-tax revenue from mineral resources, improving the efficiency of VAT collections, and enhancing tax administration.
It is also demanding further measures to accelerate state enterprises reform, strengthening of public financial management, and enhancing transparency in the mining sector, as well as intensifying structural reforms to raise potential growth and living standards, and to secure support from Zimbabwe’s development partners.
The IMF is also pushing for the softening of the indigenisation policy, enhancement of the ease of doing business and creation of a business-friendly environment, as well as resolution of outstanding land issues. Other demands include improving the investment climate, tackling corruption, and promoting economic diversification.
Chinamasa recently tried to address some of these issues through austerity measures in his mid-term fiscal policy review statement, but was blocked by cabinet.
The involvement of Stanchart in bailing out Harare after clashes with the authorities and given Mugabe’s anti-British crusade has raised eyebrows, suggesting a significant policy shift from London.
Stanchart external communications director in charge of Africa & Middle East Lauren Callie declined to comment on the issue. “Regrettably we will be unable to comment or provide any details. Sorry I can’t be more helpful in this case,” Callie said.
Reserve Bank of Zimbabwe governor John Mangudya could not be reached for comment.