Op-Ed: World Bank opens its purse to Zimbabwe, but hands out pennies

By Jee-A Van Der Linde – Economist

The World Bank will grant Zimbabwe $7m to help fight the economic damage caused by the Covid-19 pandemic.

The Washington-based lender said it will mobilise $5m from its Global Financing Facility Trust Fund towards the outbreak and redirect roughly $2m from its ongoing Idai Recovery Project to communities in need.

The aid comes at a crucial time and despite Zimbabwe being in debt arears with numerous multilateral and bilateral lenders, which renders the country ineligible for new loans or debt forgiveness.

At the beginning of April, Finance Minister Mthuli Ncube wrote to the IMF as well as other leading international lenders, pleading for financial assistance. With more than half of the population in need of food aid and the entire world facing a health pandemic, conditions in the country have reached an acutely distressing point.

Zimbabwe can no longer go at it alone.

After having settled $107.9m of debt with the IMF in 2016, the country is still indebted to the World Bank, African Development Bank (AfDB), and European Investment Bank (EIB), while significant amounts are also owed to other creditors, both within the Paris Club and outside.

The debt situation is precarious, with total external debt (largely in the form of government debt) having ballooned to over $8bn, according to the Ministry of Finance (MoF).

The reasons for this come down to years of economic mismanagement and frequent policy errors.

That said, Zimbabwe is eager to restructure and repay its debt obligations in order to become eligible for new loans. Minister Ncube has previously said that settling arrears will help elevate the country’s credit standing, but a series of external shocks and policy missteps have impeded the process.

When considering Zimbabwe’s tremendous financing needs, the $7m – ZWL$125m at the current 25:1 fixed exchange rate with the greenback – is but a drop in the proverbial bucket and falls at the lower end of what the IMF and World Bank have afforded other African nations.

Although any bit of aid will help at this stage, Zimbabwe’s problems are far from over and it will need more assistance going forward.

NKC’s analysis shows that Zimbabwe will be among the continent’s main economic laggards this year, joining the ranks of oil producing nations which have arguably been the hardest hit by the global pandemic.

Simply put, Zimbabwe’s economy will suffer a very deep contraction in 2020, akin to levels last seen over a decade ago.

That said, conditions can only deteriorate so far and serious intervention will need to take place at some point.

For more coverage on COVID-19 visit: https://www.cnbcafrica.com/covid-19/

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