When touring the construction sites of public projects, President Emmerson Mnangagwa likes to make the point that much of the infrastructure that his administration is driving is free of foreign loans.
But that may not be entirely a good thing, according to central bank governor John Mangudya.
Many developing countries fund infrastructure using long-term funding from the likes of the World Bank and the African Development Bank (AfDB). The money is payable over many years and is charged at low interest rates.
But Zimbabwe, with no access to this money, has had to do it on its own. The downside is that this is feeding inflation, Mangudya told Parliament’s budget and finance committee on Monday.
“We are using in this country short-term money for long-term projects. Other countries get long-term money,” Mangudya said.
“We have done very well in terms of public works, in terms of things that other countries could only do using long-term funding. We don’t have it.”
Finance Minister Mthuli Ncube is spending 17% of his 2022 national budget on infrastructure. But contractors on public projects are “forward pricing”, inflating Zimdollar prices to hedge against inflation. Half of what contractors are paid is in Zimdollars.
Mangudya says this problem will remain as long as Zimbabwe cannot borrow offshore.
He said: “We now therefore need to ask ourselves; do we develop a country or we don’t because we have no access to long-term funding. When you provide this money from the budget, the cost is inflation. So, that’s the downside risk of a good policy.”
Zimbabwe last had foreign developmental support in 1999, before it was cut off for not paying its debts. While the country has cleared its IMF arrears, it cannot get new money because it still owes lenders such as the World Bank and AfDB.
Even if Zimbabwe does clear arrears, Mangudya insists, bad relations with the West will keep the country from funding, until “we are in good standing” with them.