IMF funds targeted for industry

Source: IMF funds targeted for industry | The Sunday Mail

IMF funds targeted for industry
Minister Ncube

Golden Sibanda

A portion of the US$961 million received from the International Monetary Fund (IMF) in the form of Special Drawing Rights (SDRs) could be used to extend concessionary loans to industry.

The IMF released 677 million SDRs — equivalent to US$650 billion — to its 190-member countries last week to shore up foreign reserves and provide the much-need liquidity needed to stimulate the global economy, which has been affected by coronavirus.

Government has indicated that it will deploy the funds to support social sectors (health and education), vulnerable groups, productive sectors (industry, mining and tourism), infrastructure investments (roads and housing) and propping up industry and macro-economic stability.

Finance and Economic Development Minister Professor Mthuli Ncube said in an interview with Zimpapers Television Network (ZTN) on Thursday that Government will work with local banks to establish revolving facilities to finance key industries.

Earlier, the Reserve Bank of Zimbabwe (RBZ) said it was working on measures to give banks comfort to loan to industry part of the US$1,7 billion deposits lying idle in foreign currency accounts (FCAs).

Banks have been reluctant to extend foreign currency-denominated loans to industry, especially entities with full exposure to the domestic market, on concern over high potential risk of default.

Government, Minister Ncube said, will consider providing cash guarantees to the participating banks covering loans extended to key productive sectors of the economy at significantly subsidised lending rates.

“We are already thinking that this is not the Government lending money directly to the private sector. It would rather be the Government working with banks to unlock resources and the Government providing a cash cover guarantee to cover that process.

“But the interest rate will be a subsidised interest rate; that is one issue we should get out of the way,” he said.

It is believed that this could reduce pressure for the foreign currency auction and stabilise open market rates.

The auction hugely enhanced formal access to foreign currency, which stabilised the Zimbabwe dollar exchange rate, the economy and forced annual inflation, which hit a post-dollarisation high of 837,5 percent last year, to nosedive to 50,24 percent this month.

Further, more affordable loans in hard currency would give impetus to economic growth prospects this year.

Growth is projected at 7,8 percent, largely driven by strong output from agriculture, massive public construction projects and strong global mineral prices.

Treasury will also explore the possibility accessing extra resources through concessionary loans from other countries who might not be readily using their SDRs.

“Certainly, we will explore that to see if we can request extra resources from some other countries, but of course we must be mindful of not increasing our external debt, even on concessionary debt, because debt sustainability is a critical issue here,” said Minister Ncube.

Apart from the cost of lending in Zimbabwe being prohibitively high, few banks hold sufficient resources or have the capacity to extend long-term funding.

After nearly two decades of economic decline, estimates say the country’s manufacturing industry requires in excess of US$2,5 billion to retool and boost output.

However, despite liquidity challenges, high cost of funding and scarcity of long-term facilities, local industry saw capacity utilisation grow to an average of 47 percent in the first half of this year, and expects it to hit 61 percent by year-end.


  • comment-avatar

    In other words, the IMF SDRs will be stolen by corruption and greed. As usual the poor will get nothing.
    Oh and by the way, paying off a couple of million US dollars of the debt isn’t going to get further credit.