Analysts are sharply divided on whether Zimbabwe will attract investors when it issues the US dollar bond meant to help Government fund compensation of white former commercial farmers whose land was repossessed under the land reform programme which began around 2000.
For some, it is a no brainer but others see it as herculean task given the country’s high risk profile.
Zimbabwe agreed on Wednesday to pay US$3,5 billion in compensation for infrastructure improvements made by white farmers on the farms which were redistributed to black farmers under the agrarian reform.
The exercise, which saw land previously owned by only 4 500 white commercial farmers, resulted in the resettlement of about 300 000 black families.
Zimbabwe will issue a 30-year bond — the longest ever and approach international donors to raise the money.
The farmers will receive 50 percent of the money in a year and thereafter, the remainder will be paid in four equal instalments annually, according to an agreement signed between Commercial Farmers’ Union, which represents white farmers and the Government.
The deal still has to go to Parliament for debate approval, according to people with knowledge of the deal.
Zimbabwe owes international creditors, including the World Bank about US$8,3 billion, with about 70 percent of the amount being arrears, according to latest figures from Ministry of Finance and Economic Development.
Some economists believe the figure is heavily understated.
“When you compare the debt of Zimbabwe with other countries — even in the region, we are not over borrowed,” economist Eddie Cross told Business Weekly.
“Our problem is that we have not serviced our debt.
“Japan and China are the most indebted counties in the world at about 2,5 times their gross domestic product but they service their debt and therefore the international market has confidence in lending to them.”
While acknowledging the country’s political risk, Cross said; “If we can prove that we are stable and can support our borrowings, we will not have to pay significant premiums.”
He said “international money market managers who have trillions to find a market for” would subscribe, but “we should not have to pay more than 2 percent above Libor.”
Economist professor Gift Mugano said the country’s huge sovereign debt would make it difficult to attract investors.
Like many other African countries which failed to raise funds through bonds due to high debt levels, Zimbabwe was equally bound to fail.
“Zimbabwe is saddled with a huge debt,” said Prof Mugano.
“And making our situation worse is that the huge portion of it is the debt in arrears.
“When we talk of debt in arrears, it shows lack of capacity.
“While it is good that Zimbabwe has demonstrated respect for property rights, it will be a miracle if we manage to raise the money through the bond.
“And assuming there is a miracle, it will still be a curse since we will get it at a premium because of high country risk profile.”
Prof Mugano said Government should rather hold a donor conference where a funding appeal can be made to development partners.
Finance Minister Mthuli Ncube says he will travel all over the world with representatives of the dispossessed white farmers and jointly fundraise for the US$3,5 billion compensation.