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Zimbabwe is paying $400 million Afrexim Bank debt with platinum exports

Zimbabwe is using the funds generated from its platinum exports to repay a $400 million loan from the African Export-Import Bank, as the financially strained nation leverages its mineral wealth to establish lines of credit.

The southern African nation’s reliance on its platinum resources to secure borrowing reflects the difficulty Zimbabwe faces in getting loans from international financiers, Bloomberg reported.

In February, the government inked a $400 million loan agreement with Afreximbank for budgetary assistance and the funding of trade-related infrastructure.

The funding agreement comes with a 10.2% interest rate and a six-year maturity period, with the borrowing cost surging to 12.2% if a default occurs. Repayment of the loan involves using 35% of Zimplats’ export proceeds, overseen by the Reserve Bank of Zimbabwe (RBZ).

Zimbabwe’s Treasury said the Afreximbank loan was “a huge success” for the government, given that it has been shunned for more than two decades by international lenders, and has limited access to external finance, especially for budget support.

Zimbabwe’s debt burden
Zimbabwe, burdened by $18 billion in debt, continues to face ineligibility for new lines of credit from multilateral lenders, including the World Bank, the International Monetary Fund, and the African Development Bank.

Zimbabwe is the only regional member country of the African Development Bank currently under sanctions from the Bank and other multilateral financial institutions because of debt arrears amounting to over $2.6 billion.

According to New Zimbabwe, the Southern African nation has been involved in several external debt clearance strategies like the Lima plan agreed with global lenders in Peru in 2015, under which 15-year debt arrears to the International Monetary Fund (IMF) amounting to 108 million U.S. dollars were cleared.

However, the efforts did not encourage the Bretton Woods institution to unlock any credit lines for the embattled nation.

The country, endowed with vast mineral resources including gold and diamonds, introduced last week a new levy on lithium and a wealth tax to fund an almost 14-fold increase in spending aimed at shoring up the economy.

The increase comes after Zimbabwe’s dollar lost 89% of its value against the US currency this year, and annual inflation topped 176% before the way price growth is measured was revised.

The country recently launched a new gold-backed digital currency to halt re-dollarization, which the administration of President Emmerson Mnangagwa worries could destroy the nation’s already precarious economy.

Talks with creditors on a debt clearance plan that Zimbabwe is championing under AfDB president Akinwumi Adesina will resume next month, after a brief pause to allow for elections in August.

Source: Adekunle Agbetiloye ABI