Zimbabwe is working “very hard” to clear arrears to three preferred creditors to be able to access financing to reboot the economy, the country’s International Monetary Fund (IMF) resident representative Christian Beddies has said.
BY VICTORIA MTOMBA
Last year, Zimbabwe agreed to pay its combined $1,8 billion arrears to the three preferred creditors — IMF, the World Bank and the African Development Bank — by end of April to unlock cheap lines of credit. Critics said at the time the target was unrealistic.
In an interview with NewsDay Beddies said: “Government is working on the modalities for all the three financial institutions. They are working very hard to clear the arrears.”
Beddies said the raising of the money depended on government’s negotiations and the IMF was not part of that. He said there were significant downside risks from a deepening crisis adding that there was urgent need to restore confidence, which “would be best achieved through a strong economic transformation programme that could be supported by the International Financial Institutions after arrears clearance”.
“…a return to strong growth and poverty reduction will require strong macroeconomic policies in the context of a programme. Additional financial support — after the arrears clearance will be essential to help Zimbabwe’s economy to rebound,” he said.
Of the $1,8 billion, Zimbabwe owes the World Bank $1,1 billion, AfDB ($601 million) and $110 million to the IMF. Beddies said the economic activity was weakening sharply driven by external shocks, liquidity constraints and fiscal challenges.
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He said the drought required substantial grain imports, putting pressure on the national budget and the decline in exports prices was depressing export proceeds, compressing private sector imports, and contributing to subdued domestic demand.
“The US dollar appreciation induced higher than expected demand for this currency, slowed remittances and generated speculation exacerbating liquidity constraints and complicating the functioning of the multicurrency system,” he said.
The first half of the year data shows weakening activity, with declining external trade, a shortfall in tax collections, and an increase in tax arrears.”
According to IMF’s Article IV report, Zimbabwe’s deteriorating economic conditions reinforced the urgency to move forward and implement comprehensive ambitious reforms to transform the economy and to advance the reengagement process and the priority areas included fiscal discipline and rebalancing expenditure away from employment costs towards development and social spending to restore fiscal sustainability supported by strengthened public financial management and revenue administration and acceleration of State-owned enterprises.
The country is also expected to tackle external arrears and advancing the re-engagement process to allow it to eventually access external financing and addressing structural weaknesses to boost Zimbabwe’s growth potential.
According to Zimbabwe’s debt clearance plan presented to the preferred creditors in Lima, Peru last year, the first step would be for government to use the bridge loan facility arranged by its debt advisors, the African Export-Import Bank, to clear its outstanding arrears to AfDB ($585 million) and African Development Fund ($16 million). The bridge loan would be repaid using inflows from the Fragile State Facility of AfDB, the document said.
The second phase entailed using government’s Special Drawing Rights holdings to clear the $110 million owed to IMF.
Government said it would secure a medium-to-long term loan to clear its $1,1 billion arrears to the World Bank. The debt clearance strategy would be supported by bold policy reform measures aimed at debt sustainability and improving the socio-economic environment.
The measures include strengthening financial sector confidence, accelerating the re-engagement process with the international community and revitalising agriculture and the agro-processing value chain.
It also entails advancing beneficiation and/or value addition to the agriculture and mining resource endowment, focusing on infrastructure development, unlocking the potential of small-to-medium enterprises and improving the investment climate.
The clearance plan is anchored on accelerated public enterprises reform and improving public finance management, modernisation of the labour laws and aligning of laws to the Constitution and adhering to the rule of law and the pursuit of an anti-corruption thrust.