A ballooning debt in Zimbabwe is camouflaging another insidious trend where government is settling loans obligations with natural resources or guaranteeing payments from natural resource income streams.
Huge investments in the extractive sector led by foreign investors, without clear beneficial ownership disclosure, are camouflaging the controversial Chinese development financing model of resource backed loans.
Zimbabwe’s external debt pegged at US$17.7 billion in 2023, continues to balloon at 0.6 percent annually, to unsustainable proportions, consuming over 90 percent of Gross Domestic Product (GDP) in violation of the Public Debt Management Act.
Resource backed loans are loans that use a country’s natural resources to serve as a source of repayment our guarantee for loans to a State- or State-Owned Enterprise from another state, private sector and or international financial institutions.
A report by the Zimbabwe Coalition on Debt and Development (ZIMCODD) notes that Zimbabwe was currently dependent on resource-backed loans to offset its high debt to external multilateral and bilateral creditors.
ZIMCODD states that payment of loans with natural resources, fuels corruption and unsustainable resource extraction, which harms development. It has also led to environmental degradation, pollution, forced displacements of communities, farmer-miner conflicts, and human-wildlife conflicts.
“As a result of Zimbabwe’s high debt, the government is failing to fully fund social protection programs, and the value of these funds will likely be eroded by inflation. The Public Debt Management Office (PDMO) said out of US$17.7 billion in debt, 72 percent was contracted externally, while 28 percent was contracted from the domestic market,” reads part of the report.
Most of this debt is owed to China Exim Bank highly opaque, uncompetitive procedures with little Interest to social accountability, putting the country at risk to a debt trap, seizure, and forfeiture of assets.
Chinese Development Bank is also owed, with China claiming at least 34% of Zimbabwe’s total debt, the commodity backed loans or resource for infrastructure swaps have become a low hanging fruit.
As Zimbabwe is unable to get funding from traditional lenders such as the World Bank and the IMF since defaulting on its debt in the early 2000s, it has accrued over US$6 billion to Chinese lenders.
Other countries including Belarus, Brazil, India and Russia have been implicated in the RBLs drawn out to fund various infrastructure projects by government, including the construction of a new parliament building.
“However, due to the lack of contract transparency and the opaque nature of some of these RBLs, their real magnitude and extent is difficult to ascertain and the US$6.8 billion could be an under estimation of reality.
“It is clear that there is lack of transparency on the size and terms of Chinese loans to Zimbabwe …and information is hard to obtain, and the information (if accessed) is almost always sketchy,” states ZIMCODD.
Centre for Natural Resource Governance (CNRG) has also raised flags on the impact of beneficial ownership secrecy and the lack of transparency in the mining sector, as conduits of illicit financial flows or clandestine political funding.
In a study on how political parties fund their activities from mining proceeds, CNRG states that ‘dirty funds have found ways into political parties’ finances, posing many challenges and threatening both democracy and the allegiance that elected officials should ideally have towards the electorate.’
“It is worse when a country’s mineral resources are mortgaged and used as surety for the illicit ‘loans’ that politicians and political parties receive from corporate entities and individuals to fund their election campaigns,” said CNRG.
CNRG calls for massive advocacy work around the depoliticization of the minerals sector to arrest the phenomenon of plunder the country’s mineral resources through underhand deals, including but not limited to resource backed concessions.
The absence of beneficial ownership transparency, unclear repayment structures and contractual obligations of such loans facilitate the capture of state resources and minerals by politically connected elite.
It becomes imperative that the veil of secrecy that shrouds the owners of companies, partnerships, trusts, and foundations be lifted for Zimbabwe to initiate a sustainable debt management regime and tackle broader illicit financial flows from natural resources.