4 July 2009
ZIMBABWE is finalising documentation on a proposed fund-raising initiative targeting millions of residents living abroad to finance the country's reconstruction programme, Finance Minister Tendai Biti said last week.
The Diaspora bond, guaranteed by the Cairo-based African Export-Import Bank (Afreximbank), was supposed to be floated this month but has been pushed to a later date.
"We are busy finalising the contractual documentation with the guarantor," Biti said.
He said the government wanted to make sure that every Zimbabwean living abroad gets a chance to participate in the process.
The idea of the Diaspora bond was mooted in May in a bid to enlist the services of Zimbabweans to help rebuild the economy but Biti could not be drawn into disclosing the amount the government wants to raise.
A bond is a formal contract to repay borrowed money with interest at fixed intervals.
Analysts say the Diaspora bond was likely to be under-subscribed if the reception Prime Minister Morgan Tsvangirai's address in London where he was booed is anything to go by.
Government bonds are affected by a number of variables such as inflation and the perceived country risk.
Countries that are seen to be riskier than others have to offer a higher coupon (interest) in the first place to attract investors than those that have stable economies like the United States.
The riskier, the lower the price (and therefore the higher the yield) and vice versa. If a bond's price falls, its yield rises and vice versa.
Falling yields are good for an economy and are referred to by economists and politicians as "long-term interest rates" as it enables companies and government to borrow more cheaply next time they need to.
In the case of Zimbabwe, despite the formation of a coalition government in February investors have raised concerns on the absence of the rule of law and wanton violation of property rights through farm invasions.
In addition, there are some outstanding issues such as the appointment of provincial governors and key reforms promised in the power-sharing deal which are yet to be implemented.
Daniel Ndlela, an independent economist said while trying to tap into the Diaspora would be a bold move, the majority of Zimbabweans living abroad have no money to invest.
"The money they have is emergency money to support their kith and kin," he said adding that the response will be slow.
Zimbabwe desperately needs US$8.3 billion to fund the reconstruction programme.
The country's revenue inflows have been increasing since January but they remain inadequate to meet the daily needs.
From US$4.7 million in January, revenue inflows into the government's coffers increased to US$66.8 million in May.
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