Foreign banks shut out debt-ridden state firms

SEVERAL foreign banks have spurned requests by Zimbabwe's broke state firms to borrow millions of dollars to pay off more debts and bankroll critical infrastructure development projects, businessdigest established this week.

Official data showed that when Africa Export Import Bank and a string of Asian lenders, including China Exim Bank and India Exim Bank, slammed their doors on State Owned Enterprises (SOEs), government intervened with guarantees to unlock US$266,5 million in fresh debt.

The Annual Public Debt Bulletin 2019 Financial Year said the government had to borrow and on-lend to the SOEs in order to keep vital projects running.

The strategy exposes the government to the risk of accumulating more debt if the mostly insolvent state firms default on their repayments to Treasury.

The International Monetary Fund says Zimbabwe is already in debt distress.

As at December 31, 2019, domestic debt stood at ZW$8,88 billion (about US$110 million), according to the debt bulletin.

This was about 5% of the country's gross domestic product (GDP).

Government acknowledges that it had to intervene on behalf of parastatals and agrees that there are risks to public finances associated with pumping funding into failing SOEs.

"Government has been borrowing to on-lend to various public entities to support key infrastructure projects, which are critical for economic development," the bulletin says.

"Due to the limited sources of external finance for public entities, lenders have a preference to lend directly to the government, instead of public entities. The onlent facilities to public entities from 2017 to 2019 amounted to US$266,5 million. Domestic guarantees amounting to US$18,3 million and ZW$157,8 million (about US$2 million) were issued in the 2019 financial year," the 41-page paper states.

It says most of the guarantees were issued to finance inputs for the 2019/20 agricultural season.

"The public entities have been honouring their financial obligations with their respective banks, hence none of the guarantees issued were called up. Guarantees are contingent liabilities which can contribute to the accumulation of public debt in the event of default by the primary borrowers," the bulletin states.

"To this end, the government has formulated a framework for evaluating, monitoring and managing guaranteed and on-lent loans. The framework outlines the policy, legal, institutional and operational structure within which guaranteed and on-lent loans will be contracted, evaluated, monitored and managed."

It further notes that: "In 2019, government guaranteed a Zimbabwe Electricity Transmission and Distribution Company (ZETDC) loan amounting to US$110,4 million from Afreximbank for the payment of accumulated debt on imported electricity (US$79,5 million) and the procurement of prepaid smart meters (US$30,9 million). During the same period, the ZETDC serviced its debts for electricity imports from Eskom and Hidroeléctrica de Cahora Bassa of Mozambique amounting to US$87,6 million."

The report states that total external public and publicly guaranteed debt amounted to US$8,09 billion, 84% of GDP, at the end of 2019.

There has been a bloodbath in Zimbabwe's mostly insolvent 107 SOEs, which have burnt ZW$10,45 billion (US$127,7 million) in losses in the past nine years, according to data contained in the pre-2021 national budget strategy.

Finance minister Mthuli Ncube in October said parastatals' contribution to GDP had declined to only 12% this year, from a record 40% during boom times in the late 1990s.

However, the budget strategy paper revealed 12% was a significant understatement to the devastation inflicted on key State assets by mismanagement.

"SOEs, which used to contribute about 40% to GDP, are merely adding 7,5% to the country's GDP," the strategy paper revealed.

Zimbabwe's 2020 GDP is estimated at ZW$209 billion (US$2,55 billion) this year. "It is estimated that prior to the pandemic, the SOEs had accumulated losses worth around 5% of GDP since 2011 and potential costs could be as large as 18% of GDP," the 74-page strategy paper revealed.

Five percent of ZW$209 billion translates to about ZW$10 billion (US$122 million) the value of public funds blown out by SOEs in nine years, while 18% represents about ZW$37,6 billion (US$459,6 million).

Government attempted to blame blanket lockdowns activated by the government in March to limit the spread of the Covid-19 pandemic.

But it also acknowledged that weak SOEs stifle economic growth and warned that in the aftermath of excessive bleeding, 2021 macroeconomic targets were already under threat.

"The pandemic may further compromise the balance sheets and services delivery of SOEs which may threaten the attainment of 2021 macroeconomic targets," the strategy paper noted.