THE European Investment Bank (EIB) will inject €40 million (US$48 million) into Zimbabwe banks for on-lending to the private sector, following an exceptional decision by the European Union (EU) member states to allow the bank to roll out the facility despite the country’s indebtedness to international financial institutions.

EIB head of regional representation for Southern Africa Jim Hodges said the surprise decision by the bloc, which had hitherto remained sceptical about lending to Zimbabwe was a culmination of six years of protracted deliberations.

He said the decision was made towards the end of last year and it kicked off with the signing of a €15 million EIB fund with Cabs to support businesses hit by Covid-19.

This marked the first financing to Zimbabwe by the EIB in over two decades.

EIB is directly owned by the 27 EU member states. Zimbabwe’s external debt currently stands at US$8,02 billion with arrears accounting for over 77% of this balance.

As of December 2020, multilateral development banks were owed US$26 billion (32% of the total public and publicly guaranteed external debt), the World Bank debts was US$1,5 billion and the African Development Bank (AfDB) debt stood at US$705 million.

The EIB debt stands at US$330 million and other multilaterals are owed US$66 million.

Total bilateral external debt amounted to US$5,48 billion (68% of the total public and publicly guaranteed external debt), of which Paris Club creditors accounted for US$3,39

billion and non-Paris Club, US$1,58 billion.

Hodges said EIB was engaging other banks for the same facility availed to Cabs but was quick to point out that this was a two way process where banks had to express willingness after accessing risk profiles.

“It’s a €40 million facility, so we now have about €25 million which can be accessed by other banks. In Zimbabwe, we are strictly involved in the private sector but in other countries, we are doing both the private and public sectors. We are in the early stages of engagement with other banks that we can say are considering the facility because it’s a two way relationship. Banks have to assess the situation and their own risk management portfolio before they can take up the facility. It’s very early but conversations are taking place,” he said.

Hodges noted that the EIB was guided by EU policies which prevented the bank from working with Zimbabwean entities before.

“EIB is a preferred creditor for Zimbabwe. The country has been in arrears for over two decades and that posed challenges in terms of our ability to be able to lend to Zimbabwe. We have got a mandate and we are a policydriven bank.

“The government engaged the international community about five to six years ago and at that time we also started to reengage. While arrears were still in place, we were not able to engage with the public sector. So the EU member states made a decision that allows the EIB to engage with the private sector,” he said.

According to Hodges, initial talks with banks started in 2016 and the final decision was made in October last year.