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Foreign loans: Court judges victory for transparency, but don’t hold your breath

A consent ruling from the High Court directing the finance ministry to release details of foreign loans is an important step towards transparency, but might not go far enough if it doesn’t pierce the veil covering a huge pile of debt. central bank.

guest column: NewZWire

In 2019, North Harare MP Allan Markham went to court to have a $ 500 million Afreximbank facility canceled to support the Zimbabwean dollar.

Markham argued that the deal was illegal because it had not been approved by Parliament.

High Court Judge Justice Happias Zhou in his ruling this week did not give Markham what he wanted.

However, in an order to which the Ministry of Finance consented, the judge said that the government should publish in the Official Gazette the terms of government loans and guarantees regarding the African Import-Export Bank (Afreximbank) and other lenders.

Markham did not get everything he was looking for in the case, but the decision is a key step in pushing the government towards more transparency.

The ministry has already released public debt data for 2018 and 2019.

She has until January 2021 to publish details of Afreximbank’s loans.

Details of the case
In his appeal, Markham had targeted six of what he said were Afrex agreements; loans and guarantees for the Kunzvi and Morton Jaffray Waterworks dam, a loan of $ 500 million to promote exports, a loan to support the exchange rate of 1: 1, $ 255 million for imports of fuel and materials raw, and the loan of $ 500 million to support the currency.

Markham said the latter should be canceled because it was not presented to Parliament.

In his documents to the contrary, the Permanent Secretary of the Ministry of Finance, George Guvamatanga, said that the Treasury had not signed any guarantees for Kunzvi or Morton Jaffray.

The government, he said, was not involved in any negotiations between the central bank and Afreximbank on export and import facilities, or the 1: 1 loan.

“For loans and guarantees … if ever they were entered into by the 2nd defendant (Reserve Bank of Zimbabwe, RBZ), the 1st defendant (Ministry of Finance) was not involved on behalf of the state,” said Guvamatanga in his affidavit.

He conceded that the $ 500 million currency loan should have been presented to Parliament.

However, he argued that canceling it would constitute a breach of contract.

In the decision, Zhou did not order the cancellation of the loan as requested by Markham.

The Treasury also argued that the RBZ was not covered by the same legal obligations that require the Ministry of Finance to disclose details of loans it takes on on behalf of the government.
The court order itself does not explicitly order the RBZ to take action.

It was not immediately clear whether the court ruling ordered the central bank to also release details of its debt, as the applicant had originally requested.

Debt disclosure: expect little news
The Treasury disclosed the terms of its external loans for 2018 and 2019 through the publication of annual public debt bulletins for both years.

The 2019 report was released in November.

The disclosures will need to be published in the Gazette, but the court order is unlikely to yield much more than is already in the public domain.

The 2019 debt report shows that the government took out three foreign loans worth US $ 113.5 million; with $ 71 million from the China Export-Import Bank for the third phase of NetOne’s network expansion project.

The NetOne loan, signed in June 2019, bears 2% interest, has a grace period of 5 years and 29% of its value is a grant.

The other two loans, worth US $ 42.5 million, were advanced by the Indian Import-Export Bank for the modernization of the Hwange and Bulawayo thermal power stations, at an interest rate of $ 1.00. 75%, with 5-year grace periods and a 31% donation element.

Parliament approved the three loans in December 2019.

In the same year, the government guaranteed a Zesa loan in the amount of US $ 110.4 million from Afreximbank to clear its arrears of electricity imports from South Africa and Mozambique.

RBZ Piercing Veil
Reports on Treasury debt are meager when it comes to RBZ foreign loans, which have swelled sharply over the past two years.

The 2018 debt report only gives the central bank’s liabilities at $ 1.5 billion, but does not provide further details.

The 2019 report completely excludes data on RBZ lending.

The central bank’s own data, however, shows that its external debt stood at $ 2,463 billion at the end of 2019 and had reached $ 4.8 billion in August 2020, according to the latest official figures.

Guvamatanga, in court, distanced the government from foreign loans amounting to hundreds of millions of dollars taken out by the RBZ.

Appearing before Parliament’s Public Accounts Committee in March 2019, RBZ Governor John Mangudya revealed that the central bank borrowed nearly US $ 1 billion from African banks in 2018.

Of this amount, Afreximbank had contributed $ 641 million.

The loans had terms ranging from three to five years, attracting interest rates of up to 6% above the Libor rate, Mangudya said, adding that repayments were made through gold sales.

Since Mangudya made these disclosures, the central bank has more than doubled its foreign loans.

Current debt numbers
According to the 2021 budget statement, Zimbabwe’s total and state guaranteed debt is estimated at 78.7% of GDP by the end of 2020.

This stock of debt is above the legal limit of 70% of GDP, as well as the SADC recommended threshold of 60%.

External debt stood at US $ 8.2 billion in September.

Data shows that external loan disbursements are projected at US $ 426.6 million in 2021.

Most of this amount will be used for the Hwange 7 and 8 thermal power plant extension project and phase IV of the NetOne extension project.

Debt transparency
Under pressure to improve its debt management, the government last year appointed Andrew Bvumbe, former executive director of the World Bank, to head the Zimbabwe Public Debt Management Office.

However, the admission by Guvamatanga of an “oversight” in the disclosure of certain loans, shows how far the Treasury has yet to go in complying with the law on public disclosures.

The RBZ and the Ministry of Finance regularly delay the release of loans and even routine economic data, violating clear legal deadlines.

The new bill will allow the government to bypass Parliament when it seeks foreign loans.

Current law requires that the terms of loans and guarantees be disclosed within 60 days of signing.

Although Markham did not get what he wanted, with the consent order only ordering the publication of the loan terms and not the cancellation, the case helped highlight the failure of the Treasury and delays in disclosure.

This should not require legal action for a government promising a break with the past and seeking to build confidence in its management of the economy to provide regular and detailed updates on its borrowing. – newZWire

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