Last year, Patrick Chinamasa, Zimbabwe’s finance minister, appealed to the African Development Bank (AfDB) to write off $500 million of Zimbabwe’s debt. The bank declined. Neither has the International Monetary Fund (IMF) and the World Bank moved to pardon the southern African country whose debt run into $10 billion. The lenders have also stopped giving out loans to defaulting Zimbabwe. But longtime partner China will cancel $40 million worth of Zimbabwe’s debt due to mature this year. Zimbabwe is $150 million in arrears to China.
“They (China) said they are cancelling our debts that are maturing this year. Right now, preliminarily, we are coming up with a figure of $40 million,” Reuters quoted Chinamasa to have said in a statement.
Zimbabwe’s relationship with China dates back to the late 1970s. The Asian powerhouse had since been one of the key investors in Zimbabwe. The Chinese support for Zimbabwe increased following sanctions by the West on the country.
Since then, a lot of transactions have been concluded between the two countries. While China has been interested in Zimbabwe’s mineral resources, Harare imports goods ranging from military and agriculture equipment, among others, from Beijing. China is now Zimbabwe’s second-largest trading partner after South Africa, with special interest in its platinum and diamond.
Recently, Chinese President Xi Jinping, during a two-day visit to Harare, ahead of the Forum on China-Africa Cooperation (FOCAC), witnessed the signing of 10 business agreements which included a $1 billion funding of Zimbabwe’s largest thermal power plant. Zimbabwe has also received more than $1 billion in low interest loans from China in the last five years.
As China cancels Zimbabwe’s debt and bilateral trade increases, Harare will facilitate the use of the yuan in its economy. The southern African country legally ended its currency this year after it was ruined by hyperinflation, which hit 500 billion percent in 2008. It had since adopted foreign currencies like the British Pound Sterling, the US dollar and the South African rand.
With the Reserve Bank of Zimbabwe (RBZ) adding the yuan to the country’s basket of currencies last year, local use of the yuan was expected to increase.
The minister said the RBZ and The People’s Bank of China have started negotiating on a yuan clearance system. Meanwhile, Chinese tourists will be allowed to pay for services in yuan and Zimbabwe could pay its debts to China using the currency.
While the Robert Mugabe-led Zimbabwe does not have too many friends internationally, China has proven a close ally and financier. In return, Zimbabwe has received China with open arms, exempting the country from its indigenisation laws which force all foreign investors to cede 51 percent of their shareholding to selected Zimbabweans.
Zimbabwe’s “Look East” policy, which aimed to expand bilateral and trade relations and offer priority to investors from China, Malaysia, Singapore, Vietnam, Japan, South Korea, India, and Russia, has been alleged to have excluded other countries and focused on China. But which other country canceled a $40 million debt?
Zimbabwe’s economy is still struggling to recover from the 1999-2008 recession, during which its GDP shrank by 45 percent. President Mugabe said in August that his country is banking on China to help revive the economy.