Bloomberg News recently revealed that the government of Zimbabwe seeks to pay the debts it owed to Trafigura Group on contracts dating back to 2016. These contracts, reportedly worth US$225.6 million, pertain to fuel payments made by Trafigura Group on behalf of the Reserve Bank of Zimbabwe
(RBZ). The Government of Zimbabwe (GoZ) is therefore set to transfer the debts from RBZ to the Treasury and payments will be made through minerals particularly nickel from Bindura Nickel Corporation and gold from Shamva and Freda Rebecca gold mines – these mines are owned by Kuvimba Mining House (KMH).
The GoZ is the majority shareholder in KMH owning 65%. Undisclosed private shareholders control the balance in equity. Government’s failure to publicly disclose the terms and conditions, under which KMH was acquired is a clear violation of the Constitution which gives Parliament oversight role of the borrowing powers of the state. The exact beneficiary ownership of the mining house therefore remains shrouded in secrecy. However, it can be ascertained that controversial Zimbabwean tycoon – Kudakwashe Tagwirei who is under United States sanctions for alleged underhand dealings has a significant stake in KMH.
Through investigative journalism, Bloomberg News established that under the current secretive agreement, the GoZ will pay Trafigura about US$6 million per month and Trafigura will retain 40% of payments made to nickel and gold mines in collection accounts. A collection account is a debt account that has been sold by the original creditor to a third-party debt collection agency. This happens when the borrower is delinquent on payments long enough (generally 180 days) for the lender to charge off the loan, which means they consider the account to be a loss—but that does not mean the borrower is off the hook for paying the bill. Under this arrangement, the government has reportedly given Trafigura the right to approve buyers of the metals (gold & nickel), the right of first refusal, and the right to buy these metals. Ironically, all the payments under this agreement will not be subjected to tax, and transaction documents will not be lodged with any authority in Zimbabwe, thus prejudicing the country of significant revenue. In addition, this clause renders the Parliament of Zimbabwe and other accountability institutions like the Office of Auditor-General (OAG) and Zimbabwe Anti-Corruption Commission (ZACC) toothless. The GoZ is bound by the law to publicise all the sovereign deals for the sake of promoting transparency and accountability.
The continuous assumption by Government of unaccountable debts accrued by RBZ and the resort to collateralized borrowing in recent years has fuelled unsustainable resource extraction in Zimbabwe. In most of these deals, the government has inadvertently undermined the country’s future interest in order to pay off unsustainable debts.
Most assumed debts have benefitted a narrow political elite at the expense of the collective interest of the majority poor. It is the wealthy few and connected individuals who have unfettered access to and disproportionate benefit from public programmes like fuel subsidies which were provided under the Command Agriculture (CA) scheme. To this day, the public does not know the actual cost and beneficiaries of the CA scheme since it was introduced back in 2016. However, in January 2022, the government announced plans to assume RBZ debts to the tune of US$3.8 billion in blocked funds (legacy debt), the debt which is entirely owed to the private sector by the RBZ. The overtaxed Zimbabwean public will be forced to foot the bill. This also happened in prior years like in 2015 when the government assumed about US$1.5 billion RBZ debt, part of which debt was in order to write off non-performing loans given to politically connected individuals who received loans under the US$200 million Farm Mechanization Programme.
Unabetted debt assumptions are a clear dereliction of GoZ’s responsibility to steward national resources in the public’s best interest. In 2019, the government approved the assumption of TelOne’s US$338 million legacy loans. More recently, there were calls by a Parliamentary Portfolio Committee for government to assume the debt owed by the Zimbabwe Broadcasting Corporation (ZBC). Consequently, total Public and Publicly Guaranteed (PPG) debt has become unsustainable leaving the country at high risk of debt distress. Available government statistics show that as of September 2021, PPG debt stood at US$13.7 billion, a figure that excludes contingent liabilities like US$3.5 billion in compensation owed to former commercial farmers who were affected by the Land Reform Programme of the early 2000s. This will push PPG debt- GDP ratio to over 100%. A ballooning debt-GDP ratio shows a country’s capacity to repay its debts, with a rising ratio indicating that debt is growing faster than national income.
Zimbabwe is now hostage to the dire negative impacts of unsustainable debt levels on both the economy and costs of living. Recently too, the African Development Bank (AfDB) indicated that debt distress is affecting the private sector, particularly exporters. Zimbabwean exporting firms are facing difficulties in accessing lines of credit as corresponding international banks are hesitant to provide help due to Zimbabwe’s high-risk profile posed by debt distress. Unsustainable debt is also affecting capital accumulation via heightened long-term interest, higher distortionary tax rates, and inflation, and it is constraining the countercyclical effects of fiscal policies.
It is therefore incumbent upon Parliament and the Public Debt Management Office to undertake a comprehensive and independent debt audit that will inform the scale and nature of the country’s debts. An audit will also become a building block to facilitate transparent discussions about the legitimacy of certain debts like the Trafigura debt and whether it is in the public interest to use taxpayers’ money for their repayment. Again, it remains incumbent upon government and Parliamentary oversight bodies to explore sustainable means of contracting, managing, and repaying public debt, that is, it should establish and execute a strategy that ensures that its financing needs and its payment obligations are met at the lowest possible cost. The use of mineral resources to accrue or repay debts which benefitted the few instead of securing the future for the sake of the many, only serves to entrench intergenerational poverty and inequality. Zimbabweans deserve better than harmful secretive debt deals.