Zimbabwe: High Country Risk Tag Blocks Lines of Credit

Zimbabwe's high country risk profile is hampering local firms from accessing lines of credit totalling US$50 million from the African Development Bank (AfDB), as many embattled companies fail to demonstrate viability, a key prerequisite for accessing fresh funding.

AfDB country manager Damoni Kitabire said the bank had availed a US$50 million loan facility for the private sector, but a number of local firms have been unable to utilise the opportunity as they lack the required security guarantees.

Kitabire attributed the failure to runaway inflation, which is currently at 521%, the country's foreign debt overhang standing at US$8 billion and volatility on the forex exchange market. He said the factors are impeding the growth of the private sector as country risk worsens.

"We want strong projects for the private sector, but we are already dealing with the country risk. Your credit worthiness should go beyond the country risk," he said.

The US$50 million is earmarked for lines of credit, loans, grants, partial risk guarantee and equity.The country risk is complicating interventions by the continental bank to support cash-strapped local firms operating in a harsh economic environment characterised by prolonged power cuts and an acute foreign currency shortage.

Kitabire said: "We have US$50 million to lend to the private sector, preferably the agricultural sector, energy lines of credit, a little in manufacturing and tourism.

"In our operations, we don't do anything less than US$10 million. It has to be pure private sector, viable and creditworthy."

Zimbabwe owes AfDB US$700 million, making it difficult for private companies to access fresh loans for investment projects.

However, in 2019 Zimbabwe was allocated US$25 million by AfDB to support the country's struggling industries. Kitabire said the money has already been disbursed.

AfDB has been leading talks between Zimbabwe and multilateral institutions for Harare to come up with a sustainable external debt settlement plan. Lending institutions have demanded broad-based economic reforms if they are to resume financial relations with Harare.

Finance minister Mthuli Ncube last year promised to devise measures for improving the country's risk standing, worsened by decades of misrule and economic mismanagement.

Government is battling to clear US$8 billion foreign debt with multilateral lenders, having already missed the initial 12-month deadline last year, a move that is expected to worsen the country's risk profile.

As part of the roadmap to arrears clearance, the government signed up for a Staff-Monitored Programme (SMP) with the International Monetary Fund (IMF) covering the period May 15, 2019 to March 15, 2020 with quarterly performance reviews.

The SMP seeks to assist the country to implement key reforms as outlined in the government's Transitional Stabilisation Programme and build a track record of implementing sound economic policies, as it seeks to normalise relations with the international community.

But the SMP is in limbo, amid efforts to re-calibrate the agreement after government failed to meet the agreed targets.The risk profile reflects the country's creditworthiness, or the dangers of investing or lending to a country due to possible changes in the business environment against the backdrop of socio-economic and political factors.

Ncube said local banks were highly rated according to international banking standards, but have been grossly affected by the country's risk profile.

Zimbabwe is seen as riskier than other countries in the region.

According to Fitch Solutions, Zimbabwe's operating environment will remain challenging over the short to medium term as it remains vulnerable to factors such as adverse weather conditions, commodity price shocks, still-low industrial productivity and foreign currency shortages.

These risks are compounded by internal factors such as high reliance on primary sector exports, high import demand, endemic corruption, weak property rights protection, high borrowing costs and a yawning infrastructure deficit.

These factors significantly worsen the country's competitiveness relative to its southern African neighbours such as Namibia, Botswana and South Africa, reads the report.

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