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The Weekend Reader 10 February 2023

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15 views4 pages

The Weekend Reader 10 February 2023

Uploaded by

PROMINANCE KUNYADINI
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Friday 10 February 2022

THE
WEEKENDREADER
"Your Weekly Read on Debt, Development & Socio-Economic Justice"

OF MURKY DEALS & A GROWING, UNSUSTAINABLE


PUBLIC DEBT BURDEN: MBUDZI INTERCHANGE
PROJECT
This week, the Minister of Finance, Prof. Mthuli Ncube, revealed through General Notice 131B of
2023 that the Government of Zimbabwe (GoZ) entered into a loan agreement with Fossil Mines
1
(Pvt) Ltd on the 6th of December 2021. The two parties signed a US$88 million loan for the sole
purpose of funding the construction of the Mbudzi Interchange and Divergence Routes Road
Infrastructure project (the Project hereafter). This loan has a grace period of nine (9) months
with the final maturity date 6 June 2025 and a loan interest rate using the London Interbank
2
Offered Rate (LIBOR) plus 5% per annum. According to the General Notice, the loan financier
(Fossil Mines) shall oversee the implementation of the Project and disburse funds directly
towards the implementation of the Project.

As is usual, questions & concerns have risen around the Project including the cost, parallel
funding through the International Monetary Fund Special Drawing Rights, contractors involved,
parliamentary involvement (or lack thereof) and value for money (VFM) audits.

1. https://www.newsday.co.zw/local-news/article/200007208/govt-borrows-us88m-from-project-contractor
2. LIBOR is the average interbank interest rate at which a selection of banks on the London money market are prepared to lend to one another.
Of Concern
The Project Cost
The idea of the Mbudzi interchange was mooted after years of disturbing traffic congestion at
the intersection of major roads High Glen, Simon Mazorodze and Chitungwiza. As such, the
Project was long overdue to remedy the dire situation. However, its cost has raised pertinent
questions in the public domain when it is compared to the cost of other regional interchanges of
great magnitude than the Project. In defending the price tag, the government highlighted that
the quoted US$88 million comprises US$65 million for the Project structure and US$23 million
for works including costs of relocation, creation of detours, geo-tech surveys, royalties and
3
professional fees. While one needs more information to dispute the Project cost, overcharging of
the government by its contractors and suppliers is not a new phenomenon in Zimbabwe.
Prevailing weak public financial management systems are fuelling corrupt activities and
solidifying price distortions. To note as below, in 2022, all government road rehabilitation
4
projects in Midlands province were put on hold pending value for money audits due to this crisis.

Value for Money Audits


GoZ confirmed that the Project had followed the dictates of the Public Procurement and Disposal
of Public Assets Act which include value for money, integrity, fairness, competitiveness,
accountability and transparency. However, it is difficult to presume the Project had considered
maximization of value for money for taxpayers given that a sister company of the Project
financier, Fossil Contracting, is part of the TEFOMA Consortium working on the Project. Also, it
is alleged that the Project financier is linked to Kudakwashe Tagwirei who is on the US sanctions
list on the accusation of capturing the government and profiteering on illegal government
5
tenders. As such, it is difficult to rule out economies of affection in the awarding of the tender
for this Project.

Parliament Involvement
The constitution and the Public Debt Management Act together with other statutes provide for
the full involvement of Parliament in the contraction of debt by the Treasury. However, over the
years, the august House has been relegated by the executive branch and is failing to perform its
constitutional mandate. For instance, it was revealed in 2021 that Treasury incurred a
cumulative budget overrun of over ZWL100 billion in 2019 and 2020, expenditures that occurred
outside parliamentary approval. It is highly unlikely that Parliament was consulted when GoZ
entered into a loan agreement with Fossil Mines. The mere fact that the General Notice has been
publicized over a year after the contraction of this debt is an indicator of that impunity in itself &
that exclusion of parliament has become the norm. For instance, in 2002 GoZ mortgaged about
6
22 million ounces of platinum reserves in exchange for a US$200 million loan from China. These
details were revealed by Treasury in 2022.

Special Drawing Rights


When the country received over US$960 million worth of SDRs from the IMF in 2021, Treasury
promised and delivered their SDR funds draw-down plan. The plan had shown that all of the
US$144 million SDR funds set aside for the Transport sector were fully withdrawn in 2021.
3. https://www.herald.co.zw/minister-clarifies-us88m-mbudzi-interchange-costs/
4. https://www.zimeye.net/2022/11/09/overpricing-road-construction-in-eds-home-province/
5. https://www.newsday.co.zw/news/article/28977/sanctions-hit-tagwireis-business-empire
6. https://zimbabweobserver.com.au/2022/08/zimbabwe-pays-china-us52-billion-for-a-us200-million-loan/
Intriguingly, the Mbudzi interchange was part of the cost centers for the transport ministry.
Now the General Notice has shown that the deal between GoZ and Fossil Contracting occurred in
December 2021. This raises questions about the authenticity of the details in the Notice. If it is
the case that the Mbudzi interchange ended up being crowded out by other demands at the
transport ministry, at least the public should have been notified for the sake of transparency and
accountability. There is a need to audit the use of SDR funds to ascertain if these funds were used
for the government’s intended purposes listed on a plan which was shared with Parliament.

Interest Payment
The grace period of the loan of 9 months given to the government is lucrative. A grace period can
be defined as a period after the due debt during which payment may be made without a penalty.
During this grace period, no penalties are charged and the delay cannot result in default or
cancellation of the loan. Nevertheless, forgetting the principal repayment totaling a staggering
US$88 million to be paid at maturity in 2025, the loan interest to be paid per annum alone is
fiscally unsustainable. At the current Libor rate of about 5.4% “plus 5%,” it means that the loan
interest rate for 2023 is effectively 10.4% (US$9.2 million). Over a 4-year tenure, Treasury will
likely pay Fossil Mines at least US$35 million as loan interest. This is a huge amount that can
transform the dilapidating social sector. It should not go unnoticed that the government is
expecting to float a US$100 million domestic bond, an external loan facility from Afreximbank of
about US$400 million, and ZWL82.8 billion Treasury Bills to help fund the projected 2023 budget
deficit. These loans will also carry an interest rate.

The Reality of Public Debt


As stated above, Fossil Mines is guaranteed to make a minimum of US$35 million over four
years. Pending provision of full details by GoZ on how the SDR facility & Fossil loan are both
financing the project, concern over the interest rate and consequent losses are valid. What could
US$35 million do for citizens? In a country struggling to provide basics such as paracetamol in
hospitals, it could go a long way. Zimbabwe has 5 radiotherapy machines and all are not
functional right now. The cost of one is between US$2 million to US$3 million. Hence, this
amount could purchase over ten (10) life-saving machines. Sinking a borehole costs an average of
$2 500. This amount could sink 14 000 boreholes solving the water crisis for rural populations.
Following, there is a need for government to do the needful on the murky details of this debt as
the burden to pay back lies with citizens.

Conclusion
Zimbabwe has debt in arrears which are attracting interest and penalties despite government
efforts to extend token payments to creditors. Treasury debt figures show that as of the end of
September 2022, the total debt stock stood at about US$17.6 billion inclusive of US$6.32 billion in
arrears and penalties. Zimbabwe's public debt is rising at a time the global financial markets are
tightening as major central banks have declared war on inflation. Consequently, the rising
interest rates will exert enormous pressure on borrowing and debt servicing costs. The debt
burden will probably plunge Zimbabwe into debt default thus forcing the nation to use its
minerals for loan repayment. This happened when the government mortgaged its gold and
7
nickel to pay US$226 million Trafigura fuel debt.
7. https://miningzimbabwe.com/zimbabwe-discusses-deal-to-use-mineral-earnings-to-pay-off-trafiguras-old-fuel-debts/
With the financier already in the mining sector, the government may be tempted to offer mining
concessions to settle its loan at maturity. This promotes unsustainable mining activities which
disproportionately affect mining host communities through forced displacements and invasion
of farm and communal lands.

Recommendations
Debt Audit: Zimbabwe’s current public debt standing (US$17,6 Billion) is unsustainable. The
thorn in the side however is that citizens are unaware of who borrowed and for what use.
There is need for an audit to ascertain where the money went and where it is illegitimate, the
responsible account.
Increased Parliamentary Oversight: There is growing impunity in debt contraction shown
by sidestepping Parliament’s right to oversee the executive. This upset of democratic checks
and balances has a cost in monetary terms and lived livelihood realities of citizens.
Parliament should diligently increase its oversight role on behalf of citizens starting with
punitive measures for ministries/ ministers side-lining this necessary constitutional dictate.
Mandatory Value for Money audits: Government’s track record on public deals is worrisome
and presents serious losses to the fiscus. Mandatory value for money audits should be
conducted on all projects, especially the ‘mega deals’.

Opportunity Alert: Consultancy Services

A local Non-Profit Organization is looking for qualified consultants to provide the following
services:

Review Outstanding Gaps in the Public Finance Management Laws. To apply, find details
at: https://zimcodd.org/sdm_downloads/consultancy-to-review-outstanding-gaps-in-the-
public-finance-management-laws/
Conduct Value For Money Audits on the Implementation of NDS1 and Utilization of SDRs
Funds. To apply: https://zimcodd.org/sdm_downloads/call-for-consultants-to-conduct-
value-for-money-audits-on-the-implementation-of-nds1-and-utilization-of-sdrs-funds/

Deadline: 13 February 2023

Send in your adverts for jobs, internships and consultancies to [email protected]


for circulation in our publications.

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