The European Union (EU) has blacklisted the Zimbabwean government and public sector from lending from its financial institution amid fears that arrears and currency volatility are a recipe for the failure to repay debt.
Zimbabwe is failing to attract lines of credit from multilateral institutions due to its failure to service an external debt of over US$10bn.
The EU Ambassador to Zimbabwe, Timo Olkkonen told Business Times at the recent signing between the European Investment Bank (EIB) and First Capital Bank that EIB can advance to the private sector and not the government and the public sector.
“The fact that because of the arrear situation in Zimbabwe, the EIB is not able to do public lending in Zimbabwe,” Olkkonen said.
Zimbabwe the EIB over US$300m.
Harare has been engaging various potential guarantors to access bridging finance to wipe out its debt and arrear programme but EU said it will not be part of this programme.
Speaking at the sidelines of the NMB €12.5m signing ceremony, Agriculture, Private Sector and Trade, European Union Delegation to Zimbabwe head Bernard De Schrevel said the private sector has exhibited good traits that are different from the public sector.
“The reason we are not extending the credit lines to the public sector is due to the arrears that are yet to be resolved in years,” De Schrevel said.
The failure to service debts and arrears has seen Harare failing to get credit lines in two decades, making it difficult to stabilise the economy.
Olkkonen said there are some issues that make it difficult to do business with Zimbabwe which include currency volatility, forex retention and repatriation of profits.
“There are issues around security and ownership tenure of land in the agriculture sector which I know is a cause for concern but there are some discussions which are ongoing.
“There are some issues like level playing field in terms of investments and corruption which are also causes for concern in Zimbabwe,” he said.
Olkkonen said all in all the issues around economic and structural reforms that are impeding investment in the country.
“We have some economic policies that need to be reformed which form part of the dialogue with the government.
“We are engaged in negotiating the standards of the Free Trade Agreement with Zimbabwe and economic partnerships with the country. Some of these issues are about doing business and have common rules discussed in the framework of those negotiations,” he said.
Olkkonen said the union has spoken with the private sector through their partnership with the European Investment Bank.
“We also spoke to the agriculture sector where we are supporting the creation of the value chain in the large sub sector,” he said.