Zimbabwe gets $1 billion bailout?

The African Export Import Bank (Afreximbank) has extended a $1 billion loan to Zimbabwe to guarantee the convertibility value of Real Time Gross Settlement (RTGS) balances into United States dollars and to oil the nostro accounts, it has been established.

Zimbabwe now depends on the Cairo headquartered lender to stabilise its economy, which is currently facing foreign currency and cash shortages, emerging high inflation, and unsustainable government expenditure.

The authorised share capital of Afreximbank is $5 billion and it has branch offices in Harare, Abuja (Nigeria), Abidjan (Cote d'Ivoire), and Nairobi (Kenya).

Information gathered by Business Times shows that Finance Minister Mthuli Ncube held talks with Afreximbank president, Benedict Oramah, on the sidelines of the World Bank/International Monetary Fund annual meetings in Bali, Indonesia, last month where the bank agreed to extend a $1 billion loan to Harare amid concerns that Zimbabwe's debt stock could be unsustainable.

It is also understood that the regional bank is also working on a $600 million facility backed against gold as well as a $150 million line of credit facility for Zimbabwe.

But at the current bank balances, the borrowed funds could be insufficient to back the bank balances, thereby putting Treasury in a precarious position should exports continue to under-perform.

Official figures show that as of July this year, the money supply stock stood at $9,46 billion translating to a year on year growth rate of 43 percent from $6,49 billion in June 2017.

Zimbabwe abandoned its local currency in February 2009 for a basket of foreign currencies dominated by the US dollar. With the US dollar being the anchor currency, this meant that a dollar in one's bank account was at par with the greenback. But over time that has changed due to the country's trade imbalance.

Last month, Afreximbank announced that it had discussed the modality of the $500 million nostro stabilisation facility which Zimbabwe had requested from the bank and agreed on the processes to conclude the transaction by the end of October 2018. It has since emerged that the government asked for more from the bank to stabilise the economy.

The ultimate goal of the facility, according to the regional bank, is to secure payments for essential imports and to promote exports, diaspora remittances, and the deposit of foreign currency. It is envisaged that this will restore foreign currency liquidity and stability in the market.

Sources however said Ncube recently told a high level government meeting that the government had secured a $1 billion loan to guarantee the 1:1 convertibility value of RTGS balances into US dollar, following the government's announcement that foreign currency accounts had been restored after being suspended in 2013.

The measure unsettled the market pushing black market rates against the dollar to as high as 600 percent on bank transfers. The black market rate premiums have been on the rise post the July 30 elections, driven mostly by the shortage of foreign currency against rising money supply that is not backed by the US dollar.

"The minister recently announced that Afreximbank had extended a $1 billion loan to calm the markets. Part of that loan will be nostro foreign currency accounts," a source said.

Ncube's phone went unanswered while questions sent to him were not responded to at the time of going to print.

Experts say the $1 billion loan has given rise to speculative demand, as well as induced demand for US dollars as an asset. The eventual pass through effect of rising exchange premiums has been filtered into sudden price increases, particularly on goods, which the government is currently making frantic efforts to address.

In his pre-budget strategy paper, Minister Ncube also said pressure would also come from Treasury bill (TB) maturities in the short term (2018 to 2020) of $4,1 billion, which is 55 percent of the total TBs maturities of $7,5 billion to year 2033.

"The above position has far reaching consequences in the economy in terms of the government crowding out private sector lending," Ncube said. "Additionally, continued payment of government obligations through an overdraft will also worsen the liquidity challenges in the economy."