The Confederation of Zimbabwe Industries (CZI) Tuesday equated the country’s debt overhang to self-imposed sanctions, asserting that both variables have the effect of blocking access to international finance.
The private sector says it requires about $2 billion to cover short-term working capital and expenditure requirements, while government puts its annual infrastructure bill at about $10 billion, constant for the coming three years.
The country reckons this money will have to come from international capital markets following the collapse of the country’s savings base traditionally comprising banks, pension and mutual funds, equity investment funds and equity markets.
In a mid-term review of the Budget last month, Finance minister, Tendai Biti, also acknowledged Zimbabwe’s debt overhang had virtually barred the country from concessional funding by the African Development Bank (AfDB) and other multilateral lenders at rates of 1-2% per annum.
“The issue of national debt should be sorted out,” Joseph Kanyekanye, CZI president, said. “Even if the Zimbabwe Democracy and Economic Recovery Act (Zidera) and European Union sanctions were to go off today, we would still face funding problems as a nation because of debts.”
“Since 1999, we have been in arrears and they have the same effect as sanctions in blocking funding.” Nkosana Moyo, vice-president of AfDB also made a similar remark during the 2010 CZI congress last week, arguing Zimbabwe hardly constituted a credible funding case, judging by its poor debt record.
“If you stand in front of an investment committee of a financial institution today with papers saying you want to take money to Zimbabwe, they will think you are smoking something, unless it’s a private entrepreneur who doesn’t have to go through an audit trail of decisions,” Moyo said, citing Zimbabwe’s staggering delinquent debts.
“It’s because the investment case doesn’t exist in Zimbabwe.”
Zimbabwe owes external creditors an estimated $7,1 billion, the bulk of which is due to the Paris Club of creditors.
Publicly-held debt is estimated to have ballooned to around $5,7 billion this year, driven by accumulating arrears on overdue payments.
Zimbabwe’s arrears to the International Monetary Fund (IMF) amounts to about $140 million and according to the multilateral lenders’ rules, the country is not eligible to get any new loans until it settles these arrears.
The Fund, which restored Zimbabwe’s voting rights in March after a six-year suspension, projects Zimbabwe’s external debt could reach 151% of gross domestic product (GDP) by 2015, with 104% of this in arrears.
The IMF and the World Bank are agreed Zimbabwe would only head off its decade-long economic downturn and debt burden through an international debt relief under the Highly Indebted Poor Countries initiative, but insist the country should settle its obligations to the creditors’ cartel first.
Zimbabwe’s Treasury says on the other hand the country is currently bereft of the capacity to meet the obligations, which maintain a growing margin above the country’s nominal GDP, this year estimated at about $5,5 billion.
In its discussions with the Bretton Woods institutions in March, Treasury pledged mineral resources to meet debt servicing targets currently under negotiation.
But the Washington DC-based institutions are still not convinced and keep pressing for a more workable debt serving plan.
Last week, the AfDB also offered to assist Zimbabwe soak way its external debts in order to enhance its chances of securing new aid, if the country agrees.