Bilateral relations between the Middle Kingdom and Zimbabwe inspires hope for Zimbabweans

The bilateral relations between the Middle Kingdom and Zimbabwe have brought a sense of relief to the Zimbabwean population, who are now seeing a brighter economic future.

Given Zimbabwe's historical reliance on foreign aid from China, the Middle Kingdom's decision to write off undisclosed interest-free loans is a significant step. The Zimbabwean dollar, with its tumultuous history, has been one of the world's worst-performing currencies. It dropped during the hyperinflation and economic instability of 2009, when the US dollar became the primary medium of exchange. However, the Zimbabwean dollar was reintroduced in 2019, replacing all other legitimate tenders, including the greenback.

Back in the 2000s, the government of the founding President, Robert Mugabe, who was later on succeeded by Robert Mnangagwa, printed lots of notes that resulted in ridiculous amounts, such as a hundred trillion dollars, in a bid to make attempts to compensate for a downfall of agricultural production that had been caused by a contentious land-redistribution exertion. This resulted in the falling purchasing power of the Zimbabwean dollar. Before the Zimbabwean dollar's inception in 1980, when Zimbabwe gained its independence, the Rhodesian dollar existed, having been introduced in 1970.

When the Zimdollar was born, it functioned as a regular currency before the hyperinflation rendered it one of the lowest-valued currency units in the world. Before the reintroduction of the Zimdollar in 2019, Zimbabwe had embraced the multiple-currency system that comprised the US$ that was the main one, the Japanese yen, the Australian dollar, the Indian rupee, the South African rand, the euro, the Botswana Pula, the pound sterling, and Chinese Yuan. In 2019, the Reserve Bank of Zimbabwe did away with the multiple-currency system and reintroduced the new Zimdollar, also known as the real-time gross settlement (RTGS) that was in use only between June 2019 and March 2020, after which the multiple-currency system was allowed again. Recently, on 5th April 2024, the dollar was removed entirely and replaced with ZiG, a structured currency backed by gold. The history of the Zim dollar depicts too much economic instability that renders it almost valueless compared to the standard US$. Additionally, this history delineates economic mismanagement, hyperinflation, and currency devaluation that has instigated a chaotic financial landscape defined by volatility and misery for its population.

Zimbabwe has had overdependence on foreign aid in the form of grants, concessional loans and policy support from the East, and this has caused it to be labelled as a state in a death trap because of the excessive Chinese loans. The Middle Kingdom has been accused of trying to gain political leverage and influence over the USA in Africa by granting loans to the states in Africa that it knows that their financial incapacitation impedes them from paying off loans. Critics have analyzed China’s benevolence as something with a political agenda connoted towards it. Nevertheless, China has intensely denied the allegations, mentioning that its relations with African states is a policy of non-interference in other countries' affairs. Unlike the USA, concerned about its beneficiary countries being democratic, China is apathetic about the form of government of its aid recipient states.

In the latest debt analysis by the Zimbabwe Coalition on Debt and Development- ZiMCODD, the loan defaults in the reign of Robert Mugabe and the state's persistent economic challenges had left Zimbabwe with a debt burden. The attenuating economy of Zimbabwe, coupled with the non-repayment of debt in the early millenniums, has always attracted prohibitive fines and suppressed the potentiality to service debts, thus trapping Zimbabwe in a debt default position. The high debt arrears of Zimbabwe have given access to low-interest loan finance to be obstructed.

The reasons behind Zimbabwe's reliance on Chinese aid are multifaceted. The Zimbabwean government values China's non-interference policy, which does not impose governance or human rights requirements like aid from Western governments or organizations. Additionally, China provides access to assistance, loans, and investments in infrastructure projects, which are crucial for Zimbabwe's economic development. However, this reliance on Chinese aid also raises questions about Zimbabwe's ability to build its own economy and manage its debt.

For instance, China loaned Zimbabwe billions of dollars to ameliorate two main international airports and scale up its two main thermal and hydroelectric power stations. Moreover, Zimbabwe's limited access to global financial markets due to its economic predicament forces it to seek assistance from alternate sources such as China. China's geopolitical objectives contribute to Zimbabwe's reliance on foreign aid from China, as it receives access to Zimbabwe's natural resources, including minerals and agricultural products. To add onto that, Zimbabwe seeks aid and loans from China, its largest non-Paris creditor, because it is ineligible to receive loans from multilateral creditors such as the IMF and World Bank after failing to repay previous debts in the early millenniums as a beneficiary of the HIPC relief (Highly Indebted Poor Countries Initiative). Since Zimbabwe possesses the interim poverty reduction paper 2016-2018, it still needs to qualify for debt relief via HIPC.

Zimbabwe borrowed a $400 million loan in 2023 from Afrexim Bank to support budgets and finance trade-related infrastructure. It will repay the loan using 38% of the export earnings of the country's largest platinum miner. This was after securing a $200 million loan from China, thus putting the 26 million platinum reserves as collateral. This could be interpreted as predatory donor states taking advantage of Zimbabwe's fiscal meltdown by propelling debt increases and having natural resources and mineral revenues at the mortgage.

The potential effects of China's debt relief for Zimbabwe could be transformative. It could alleviate Zimbabwe's debt burden, fostering economic stability in the state. This act could also serve as a catalyst for other loan lenders to follow China's lead, providing further financial support to Zimbabwe. However, it's crucial for Zimbabwe to not become overly reliant on debt write-offs, but instead focus on implementing viable economic reforms and effective debt management schemes.

Zimbabwe is highly susceptible to continuance dependence on aid in the form of loans since it has yet to steady its fiscal position and is grappling with past debts. If by September of 2023, Zimbabwe's debt had totaled $17.7 billion, having $12.7 billion owed externally and $5 billion domestically, could we agree that Zimbabwe’s debt ubiquity is of alarming concern? As this lingers on, China's ambassador to Zimbabwe, Zhou Ding, mentions that China attaches prodigious importance to resolving Zimbabwe's debt matters, thus nurturing significant bilateral ties, with the United Nations inspiring countries to participate in mutually beneficial financial backing and cooperation.

As the world watches closely China's developments in the quest to resolve its debt imbroglio, much is anticipated for future debt remodeling strategies and the stabilization of Zimbabwe's financial locus. While Zimbabwe faces a dilemma between servicing loans and serving its citizens, the impact of China's debt relief initiative is yet to be seen by international observers. Being a developing country, Zimbabwe's debt sustainability after debt relief will remain meticulously monitored.