TWO years after Zimbabwe’s plans to clear its arrears to three preferred creditors, the country has made a single step and resorted to shifting goalposts as it battles to oil the re-engagement wheels.
BY FIDELITY MHLANGA
In the Peruvian capital, Lima, Zimbabwe said it would use its own resources, arrange a bridge finance with regional and international banks and the usage of bilateral loans to extinguish its debts to the International Monetary Fund ($110 million), the World Bank ($1,15 billion) and $601 million owed to the African Development Bank(AfDB) by end of April 2016. The three creditors were supposed to be paid simultaneously.
The strategy also involved the development of a comprehensive country financing programme supported by AfDB, IMF and the World Bank. Zimbabwe would then engage the European Investment Bank, the Paris Club and non-Paris Club bilateral creditors for debt resolution on the strength of its performance under the programme.
Other than paying the IMF using special drawing rights holdings, Zimbabwe has failed to agree to the timelines, coming up with assertions that were later dismissed by creditors.
In July last year, then Finance minister Patrick Chinamasa told an investment conference in London that Zimbabwe was negotiating for a country financing programme alongside the debt clearance.
IMF rebutted Chinamasa’s assertion.
“There is no financing programme under discussion with Zimbabwe at this point. However, the authorities have announced a plan to clear their arrears with the fund and with other international institutions as part of their re-engagement with the international community,” spokesperson Gerry Rice said then.
Zimbabwe had to abandon the simultaneous repayment to creditors due to financial constraints. Government would spring another surprise: it had secured close to $1 billion to clear World Bank obligations the nation was told. Nearly a year after that statement, the obligations have not been settled.
Clearance of debt is essential to attract in the short-to-medium and long-term foreign and domestic investment, lower country risk, and open the door to foreign finance inflows.
Of the total external debt of $7,2 billion, $5,1 billion is in arrears. The arrears problem remains a stumbling block for Zimbabwe to access new financing at cheap borrowing terms
“Whilst funding for the clearance of arrears to the IFIs has been secured, the arrears shall be expunged in synchrony with the execution of the structural reform measures presented in the 2017 mid-term Budget Review statement by the minister of Finance (Former) and Economic Development,” Mangudya said in his mid-year monetary policy statement.
Chinamasa in his annual Budget Review enunciated that the country needed to implement strong fiscal adjustment and structural reforms to restore fiscal and debt sustainability and foster private sector development.
“It is, however, important to note that for any future consideration of new financing from the IMF, Zimbabwe would be required to comply with other applicable IMF policies, which includes: Resolving arrears to other multilateral creditors under the pari-passu rule (African Development Bank, the World Bank, European Investment Bank) as well as bilateral official creditors; and implementing strong fiscal adjustment and structural reforms to restore fiscal and debt sustainability and foster private sector development,” he said.
Chinamasa said the implementation of structural reform measures focused on improving Zimbabwe’s openness as a destination of investment, reforming public enterprises to transform them from perennial loss-making and dependency on the fiscus, to contributors of employment creation, exports and tax payment.
Other preconditions required to ensure debt sustainability include strengthening the public finance management system to enhance transparency and accountability in the utilisation and management of public resources, streamlining public procurement processes, strengthening the monitoring capacity of the legislature.
Experts say the debt clearance plan had been sabotaged by Zimbabwe’s failure to undertake reforms.
Former Finance minister Tendai Biti said the debt clearance strategy, commonly referred to as the Lima plan, died the moment Zimbabwe announced plans to introduce bond notes without informing IMF which had a team in the country.
“Lima died on May 4 last year when Zimbabwe announced plans to introduce bond notes. I don’t know why Chinamasa and a few of his friends in the diplomatic community did not call us for a funeral wake,” Biti said.
He said the country required structural, painful reforms which the Zanu PF government was not willing to undertake.
Economist and Zimbabwe National Chamber of Commerce chief executive officer Christopher Mugaga said debt clearance was hampered by poor relations between Zimbabwe and shareholders of the multilateral institutions.
“The problem of Zimbabwe’s failing to clear its arrears is because of political relations. Zimbabwe cleared its debt with IMF but still owes AfDB and World Bank but it is unable to access fresh funding,” he said.
“The issue is about political relations. Remember major shareholders of IMF are USA, France, Britain and Germany. Even If Zimbabwe was to repay these institutions, it was not going to unlock fresh funding. It’s not about repaying the debt. There are a lot of risks associated with dealing with this country. These guys look at a lot of things. The recalling of Chinamasa (former Finance minister) from IMF meeting alone was a negative move.”