A High Court consent ruling directing the Ministry of Finance to publish details of foreign loans is an important step towards transparency, but may not go far enough if it does not pierce the veil covering a huge central bank debt pile.

In 2019, Harare North MP Allan Markham went to court to have a US$500 million Afreximbank facility to support the Zimbabwe dollar cancelled. Markham argued that the agreement was illegal as it had not been approved by Parliament.

High Court judge Happias Zhou, in his ruling released this week, did not give Markham what he wanted. However, in an order which the Ministry of Finance consented to, the judge said the Government must gazette the terms of loans and guarantees by the government relating to the African Export Import Bank (Afreximbank) and other lenders.

Markham did not get everything he sought for in the case, but the ruling is a key step in nudging the government towards more transparency.

The Ministry has already published public debt data for 2018 and 2019. It has until January 2021 to gazette details of the Afreximbank loans.

The case details

In his appeal, Markham had targeted six of what he said were Afrex agreements; loans and guarantees for Kunzvi Dam and Morton Jaffray Works, a US$500m loan to promote exports, a loan to underpin the 1:1 exchange rate, US$255m for fuel imports and commodities, and the US$500m loan to back the local currency.

Markham said the latter must be cancelled, as it was not brought to parliament.

“We were not involved in such on behalf of the State…”

In his opposing papers, Ministry of Finance Permanent Secretary George Guvamatanga said Treasury had not signed any guarantees for Kunzvi or Morton Jaffray. Government, he said, was not involved in any negotiations between the central bank and Afreximbank on the export and import facilities, or on the 1:1 loan.

“For the loans and guarantees…if ever they were concluded by the 2nd Respondent (RBZ), the 1st Respondent (Finance Ministry) was not involved in such on behalf of the State,” Guvamatanga said in his affidavit.

He conceded that the US$500m loan for the currency should have been brought to Parliament. However, he argued, cancelling it would be a breach of contract.

In the ruling, Zhou does not order the loan’s cancellation as Markham sought.

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

It was not immediately clear whether the court ruling enjoins the central bank to publish details of its debt as well, as originally sought by the applicants.

Today in Bali, Indonesia at the IMF/World Bank Meetings, I had fruitful discussions with the President of Afreximbank Dr Oramah. Afreximbank has offered Zimbabwe a facility to guarantee 1:1 Convertibility of RTGS balances into US$ and availability of US$ for Nostro FCAs. pic.twitter.com/ArlqdQoOyG

— Prof. Mthuli Ncube (@MthuliNcube) October 10, 2018

Debt disclosure: expect little new

Treasury has disclosed terms of its external loans for 2018 and 2019, through the release of annual public debt bulletins for the two years. The 2019 report was released in November.

Disclosures will need to be gazetted, but the court order is unlikely to yield much more than is already in the public domain.

The 2019 debt report shows that government contracted three foreign loans worth US$113.5 million; with US$71 million coming from the China Export-Import Bank for the third phase of NetOne’s network expansion project. The NetOne loan, signed in June 2019, attracts 2% interest, has a 5-year grace period and 29% of its value is a grant.

The other two loans, worth US$42.5 million, were advanced by India’s Export-Import bank for thermal power plant upgrades at Hwange and Bulawayo, came at 1.75% interest, with 5 year grace periods and a grant element of 31%.

Parliament approved all three loans in December 2019.

That same year, the government guaranteed a Zesa loan amounting to US$110.4 million from Afreximbank to clear its arrears for electricity imports from South Africa and Mozambique.

Piercing RBZ veil

The Treasury debt reports are thin when it comes to the RBZ’s foreign loans, which have swelled markedly over the past two years.

The 2018 debt report only gives the central bank’s liabilities as US$1.5 billion, but does not provide any further details. The 2019 report excludes the RBZ loan data altogether. The central bank’s own data, however, shows the RBZ’s external debt stood at US$2,463 billion at the end of 2019 and had risen to US$4.8 billion by August 2020, according to the latest official figures.

Guvamatanga, in court, distanced the Government from foreign loans running into hundreds of millions of dollars contracted by the RBZ.

Appearing before Parliament’s public accounts committee in March 2019, RBZ governor John Mangudya disclosed that the central bank had borrowed nearly US$1 billion from African banks in 2018. Of that amount, Afreximbank had put up US$641 million.

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

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

Current debt numbers

According to the 2021 budget statement, Zimbabwe’s total and publicly guaranteed debt is estimated at 78.7% of GDP by the end of 2020. This debt stock is above the legal limit of 70% of GDP, as well as over 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. The bulk of this will be used for the Hwange 7 & 8 Thermal Power Station Expansion Project and NetOne Expansion Project Phase IV.

Debt transparency

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

However, Guvamatanga’s admission of an “oversight” in disclosing some loans, shows how far Treasury is yet to go on following the law on public disclosures. Both RBZ and the Ministry of Finance routinely delay the release of loans and even routine economic data, violating clear legal timelines. New proposed legislation will allow government to bypass Parliament on foreign loans.

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

While Markham did not get what he wanted, with the consent order only ordering publication of the loan terms and not cancellation, the case has helped highlight Treasury’s failures and delays on disclosure.

It should not require legal action for a government promising a break from the past and seeking to bolster confidence in its handling of the economy to provide regular, detailed updates on its borrowings.