By Talkmore Gandiwa/ Pride Mzarabani
President Emmerson Mnangagwa said the banking sector should play its intermediation role and provide affordable financing for re-tooling efforts and working capital.
This move aligns with the government’s broader agenda to stabilize the economy, reduce debt, and attract new investments. However, the economy has been crippled with the shortage of foreign currency weighing down company production capacity.
Zimbabwe has been making notable efforts to address its international and domestic debt, a major hurdle to accessing foreign credit markets. According to the African Development Bank (AfDB), Zimbabwe’s total debt stands at approximately $20 billion, with $13 billion attributed to external debt and $8 billion to domestic debt.
Over the past two decades, this substantial debt burden has hampered the country’s ability to secure long-term, affordable international financing. The Ministry of Finance and Economic Development reported that the government is now making quarterly payments to international creditors to rebuild trust and restore access to global financial markets.
As part of its Engagement and Re-engagement Programme, the government is actively working to unlock credit lines from International Financial Institutions (IFIs) and other financiers. Mnangagwa reiterated the importance of these efforts, noting that affordable credit is essential to drive industrial recovery and promote export-oriented growth.
“All efforts are being made to unlock affordable long-term lines of credit from International Financial Institutions and other financiers,” said Mnangagwa.
NMB Bank, which currently manages a $57 million line of credit aimed at supporting exporters. This facility has been instrumental in boosting export earnings, which are vital for the country’s foreign currency reserves. Additionally, NMB is negotiating an additional $25 million from two separate financiers to further bolster its capacity to support exporters.
However, Zimbabwean banks face significant challenges in accessing international credit. Chief among these are the country’s high-risk perception, largely due to historical defaults and sanctions imposed by Western countries.
This risk perception drives up the cost of borrowing, with financiers demanding higher interest rates and stringent terms. Zimbabwe’s weak credit ratings and limited integration into global financial systems further exacerbate the problem, making international lenders hesitant to engage.
Additionally, the lack of a clear repayment track record raises concerns among creditors. While the government has made strides in making quarterly debt payments, it still needs to address arrears with key institutions like the World Bank and the International Monetary Fund (IMF). Resolving these arrears is critical for reestablishing trust and securing new financing.
On the domestic front, banks also struggle with limited capital buffers. High inflation and exchange rate volatility erode their ability to mobilize local resources, making them overly reliant on external funding. Furthermore, domestic companies often lack the collateral and robust financial records required to meet international lending criteria, compounding the challenges for banks attempting to access credit on their behalf.
Despite these hurdles, there are opportunities. The government’s debt clearance strategy, spearheaded by the AfDB and supported by development partners, offers a pathway to restoring international confidence. If successfully implemented, this strategy could unlock not only credit lines but also foreign direct investment, essential for reviving key sectors like manufacturing and agriculture.
Additionally, Zimbabwe’s growing export sector presents a viable avenue for attracting financing. The mining sector, in particular, has shown resilience and remains a key foreign currency earner. By channeling international credit into export-oriented industries, banks can create a multiplier effect, boosting both foreign currency inflows and economic growth.
