Afreximbank: Zim’s rare shining amour
ASTATUTORY notice detailing terms of the loans that Zimbabwe obtained from the African Export and Import Bank (Afreximbabnk) between 2017 and 2019 has shown that the much maligned African country has been able to unlock significant foreign loans despite a global shutout.
Zimbabwe has, for nearly two decades, not been able to borrow from the majority of international financial institutions (IFIs) due to “outstanding debts”, which stand at US$8,1 billion.
Much of the foreign debt, totalling US$5,9 billion — is accumulated arrears, penalties, and interest arrears. Which means the principal debt itself is just about US$2,2 billion.
While the Government is working to clear the liabilities over a 15-year period, a recent request for bridging finance to clear the arrears, so it could access fresh concessionary funding from the lenders, was spurned by the financial super powers, spearheaded by the Brettonwoods institutions.
Although Zimbabwe is up to date with the International Monetary Fund, it still cannot access concessionary loans from the World Bank, African Development Bank, Paris Club and others like the European Investment Bank due to the pari passu rule of IFIs, which requires equal treatment of all lenders.
In a demonstration that the country continues to stand aloof in terms of global capital borrowing, Harare was overlooked for bailouts other nations received from the IMF to limit the impact of the Covid-19 global pandemic or to avoid defaulting on the fund’s loans.
The flagrant disregard of any exceptional circumstances the country may find itself countenancing, has seen Zimbabwe able to engineer and secure support from the regional lender and few other bilateral partners.
Although some consider the terms for the loans onerous, it is because options are genuinely limited.
While its options are limited, loans from the Afreximbank demonstrate the country’s resilience in obtaining significant bridging finance from outside its borders where pleas for assistance from the likes of the IMF, World Bank and AfDB, consistently fall on deaf ears.
The Ministry of Finance and Economic Development has recently published the terms of the US$1,4 billion worth of loans, which Zimbabwe secured from the Afreximbank since 2017 for strategic commodity imports and local currency support.
Publication of terms and conditions for all public loans is a requirement in terms of Section 300 (3) of the Constitution of Zimbabwe, which is fully provided for under the Public Finance Management Act.
Harare obtained the loans, totalling US$1.4 billion over the 36 months on three occasions and in varying amounts; US$600 million in 2017, US$500 million in 2018 and US$300 million in 2019.
The Southern African country has regularly imported key commodities such as maize (especially during drought years), wheat and fuel, at a time its own resources did not suffice to procure such.
The Government, acting through the Ministry of Finance and Economic Development, guaranteed the loans, which were concluded by the Reserve Bank of Zimbabwe (RBZ) with the Afreximbank.
The last loan was for US$300 million, concluded in December 2019 for a tenure of 60 months and subject to LIBOR (London Interbank Offer Rate) plus 6,5 percent and commitment fee of 2 percent per annum on outstanding principal.
Annual management fee for the loan was pegged at 1,25 percent while the arrangement fee was a one off payment of 1,25 percent of the total loan amount.
The US$500 million loan, concluded in May 2019, is liable to 1,12 percent annual management fee, advisory fee of 1,25 percent of total commitments, participation fee of 1,25 percent as well as 0,5 percent standby letter of credit fee.
According to the notice published by the minister, this loan facility was meant for strategic imports and prospective currency reforms.
The loan, spread over 48 months, was meant for financing strategic commodity imports.
The first loan, US$600 million, was for a period of three years with the tranches A and B being subject to interest of LIBOR plus 6,5 percent per annum, 1,25 percent management fee and draw down fee of 0,5 percent of the amount advanced to the borrower.
The facility fee shall be a once off payment of US$12 million with the funds earmarked for procurement of strategic commodities.
While there has been criticism from certain quarters over aspects of and justification for the loans, in light of Zimbabwe’s tight debt situation, the country regularly needed a hand from a trusted lender at after it was shut out of by global lenders.
And Afreximbank has been one of very few global lenders to stand by and support Zimbabwe financially at a time the economy lacked reserves and domestic means to support critical requirements.
Zimbabwe has not had commercial relations with global lenders such as the International Monetary Fund, World Bank and African Development Bank over outstanding arrears, which accumulated when the economy went into a tailspin at the turn of the century.