AfDB redflags Zimbabwe over resource-backed loans

The African Development Bank (AfDB) has issued a stern warning to Zimbabwe over its growing reliance on mortgaging natural resources to secure foreign loans, cautioning that the strategy risks deepening fiscal vulnerability while quietly surrendering control of strategic assets to external financiers.

In two newly released reports — Zimbabwe Natural Resources Country Analysis and an accompanying policy brief — the continental lender said Zimbabwe has increasingly turned to resource-backed loans to finance infrastructure and energy projects, with the People's Republic of China emerging as the dominant beneficiary of these arrangements.

While acknowledging that such loans have helped the country rebuild critical infrastructure, AfDB warned that weak transparency, limited parliamentary oversight and opaque contract structures pose long-term risks that could outweigh the short-term development gains.

Between 2004 and 2019, Zimbabwe mortgaged an estimated US$2,87 billion worth of mineral resources to China, mainly through financing agreements with the China Exim Bank. According to the bank, these arrangements have tied future mineral revenues to debt repayment obligations at a time when Zimbabwe remains vulnerable to commodity price volatility and has limited access to conventional capital markets.

"China has been a key partner in Zimbabwe's adoption of resource-backed loans, financing several transformative projects aimed at addressing developmental challenges," AfDB said. "However, as public debt remains elevated, future engagements must be carefully structured to safeguard fiscal sustainability and national resource sovereignty."

Among the largest projects financed through such mortgage-style arrangements was the US$998 million expansion of Hwange Thermal Power Station, which significantly boosted electricity generation capacity and eased chronic power shortages that had undermined industrial productivity. Another flagship project was the US$150 million upgrade of Victoria Falls International Airport, completed in 2016, which increased passenger-handling capacity to about 1,5 million travellers a year from roughly 500 000 previously.

While AfDB acknowledged that these projects delivered tangible benefits, particularly in energy security and tourism development, it warned that the governance framework underpinning resource-backed borrowing remains dangerously weak.

The bank cited the absence of robust contract disclosure requirements, limited parliamentary scrutiny and poor institutional oversight as key vulnerabilities. It noted that approximately US$1,2 billion worth of active projects are still linked to resource-backed repayment structures, largely in the energy and mining sectors.

"Repayment risks are heightened by declining global mineral prices and elevated debt levels," AfDB said, warning that adverse market movements could quickly destabilise public finances if collateralised revenues fall short.

Beyond China, the bank identified Russia and India as other countries to which Zimbabwe has pledged resources in exchange for financing in sectors such as mining, agriculture and energy. AfDB cautioned that the growing web of bilateral and largely non-transparent lending arrangements increases the risk of fragmented and difficult-to-manage debt obligations.

The lender urged Zimbabwe to fundamentally rethink its approach to resource-backed borrowing, stressing that future transactions must be grounded in transparent, rules-based frameworks aligned with national development strategies. It called for full parliamentary oversight of all such agreements, independent valuation of pledged collateral and competitive lender selection to ensure value for money.

"All resource-backed transactions should be informed by independent technical and financial assessments, fiscally prudent repayment structures and clear time horizons," AfDB said, warning that poorly structured deals could mortgage future growth rather than unlock it.

To reduce exposure, the bank recommended the use of special-purpose vehicles to ring-fence revenues generated by resource-backed projects, ensuring funds are channelled strictly towards clearly defined infrastructure and social development priorities. It also called for comprehensive public disclosure of contracts, including repayment terms and beneficial ownership, as a foundation for accountability and public trust.

Regular debt sustainability assessments, integrated into broader macro-economic risk management frameworks, were described as essential to preventing a slide into debt distress driven by commodity price shocks or tightening external financing conditions.

Across Africa, resource-backed lending has become increasingly attractive to governments facing shrinking fiscal space and restricted access to global capital markets. However, development finance experts warn that mortgaging strategic assets often shifts risk disproportionately onto borrower countries, locking them into rigid repayment structures with little flexibility during economic downturns.

AfDB cautioned that without strong governance, transparency and institutional safeguards, mortgaging natural resources can convert short-term infrastructure gains into long-term development constraints.

For Zimbabwe, the bank warned, the challenge is no longer whether resource-backed loans can deliver infrastructure, but whether the country can afford the quiet surrender of future mineral revenues in exchange for today's capital.