How Is Zimbabwe Paying for Its New Bond Notes?


Questions are being raised about the collateral behind the Zimbabwean government’s issue of new US dollar denominated bond notes, an initiative which was announced by the Reserve Bank of Zimbabwe this week. There are fears that issuing bond notes could quickly lead to hyperinflation, a phenomenon that wrecked the economy before the Zimbabwean dollar was withdrawn in 2009.

The new bond notes will be backed by a 200 million US dollar support facility provided by the African Export-Import Bank (Afreximbank), according to Zimbabwe’s central bank. However, an Afreximbank spokesperson would neither confirm nor deny to RFI that it was underwriting the bond notes, referring enquiries back to the Reserve Bank of Zimbabwe (RBZ).

Searches on the Afreximbank and RBZ website provided no further detail on the existence of any new financing to support the bond note initiative. But the Cairo-based Afreximbank has previously provided trade finance to Zimbabwean banks through an agreement with the country’s finance ministry and central bank.

Afreximbank has an office in Harare, according to its website, and Zimbabwean media reported in April that the government gave land to Afreximbank. Nevertheless, concerns about where the financing for the bond notes is coming from are not unfounded. The government owes international lenders some nine billion US dollars including the World Bank, International Monetary Fund and Africa Development Bank, as reported by the AFP news agency.

The introduction of new bond notes in October has raised the prospect of a return to hyperinflation for many Zimbabweans. Annual inflation by the end of 2008 had reached more than 230 million per cent and at one point the government issued a 100 trillion Zimbabwean dollar note.

“It’s going to lead to a further corrosion of business confidence,” Tendai Biti, Zimbabwe’s former finance minister, told RFI. “You’re going to see increased capital flight – increased externalisation both legally and extra-legally – it’s a wrong policy.”

In 2009, Biti presided over the withdrawal of the Zimbabwean dollar leading to the use of several foreign currencies being formalised within the economy. “You can’t reintroduce the Zimbabwean dollar by any other name,” Biti said of the new bond notes. The opposition leader is calling for the RBZ to provide the full details of the Afreximbank financing for the bond notes.

“It’s dangerous because the value might drop quite considerably if people refuse to accept it,” said Zimbabwean economist John Robertson. “Too many people remember working hard for money that became valueless within weeks,” he told RFI.

The bond notes are initially expected to be used in payments for export transactions and then filter through the economy with the RBZ saying there will be at least 75 million US dollars in circulation by the end of the year. State-run newspaper The Herald reported that they would be issued in two and five dollar denominations and the public would not be forced to use them.

RFI spoke to Finance Minister Patrick Chinamasa for this report, but he was unavailable for comment.

By Daniel Finnan, Nick Champeaux

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