REVELATIONS that Zimbabwe is pushing to be classified a Heavily Indebted Poor Country (HIPC) as Harare seeks debt relief in what is effectively a volte-face on the long-held official aversion to the initiative is a confirmation of failure by President Emmerson Mnangagwa’s government.
The Mnangagwa administration has been insisting Zimbabwe is on track to becoming an upper middle-income country by 2030, but the latest move suggests the target is pie in the sky.
A report by the International Monetary Fund (IMF) reveals that the southern African nation remains in debt distress, battling to access long-term cheap capital from multilateral lenders like the World Bank, African Development Bank, and the IMF.
In an apparent somersault on economic policy, the Zanu PF government now considers HIPC an option following years of frowning upon the idea.
Instead, the government has been parroting “successes”, with Finance minister Mthuli Ncube boasting about imaginary surpluses at a time the masses are suffering and feeling the weight of the deteriorating economy.
At this moment, it is prudent to put several things into perspective when looking at what the government is proposing.
Firstly, this proposal is nothing new.
During the Government of National Unity (GNU) between 2009 and 2013, the then Finance minister Tendai Biti proffered HIPC as a possible solution to Zimbabwe’s economic woes but Zanu PF stalwarts, including Patrick Chinamasa who would become Biti’s successor at Treasury, blocked the proposal. Zanu PF heavyweights felt being labelled a poor and highly indebted country would have been a confirmation of failure.
Those who were ushing the HIPC model reasoned that the model would allow the IMF to provide faster, deeper, and broader debt relief and strengthened the links between debt relief, poverty reduction and social policies.
For a debt-ridden country like Zimbabwe, with not many options on the table, HIPC was seen as a noble route.
After failing to kickstart the economy despite publicly declaring success and blaming all failure on sanctions, the Mnangagwa administration has now approached the IMF with the proposal, as reality sinks in.
With limited budgetary support, Zimbabwe has over the years relied on internal resources and loans with usurious interest rates to finance some of its critical projects.
Following several failed attempts to settle the ballooning debt such as the Zimbabwe Accelerated Arrears Debt and Development Strategy (ZAADS) and later the Lima Plan of 2015, Zimbabwe, according to the IMF, is now pursuing the HIPC model, which during the Government of National Unity was frowned upon by Zanu PF.
According to a detailed IMF report published this month following the conclusion of Zimbabwe’s Article IV Consultation, the country’s public and publicly guaranteed external debt is this year expected to rise to US$17.4 billion from US$17.2 billion in 2021.
External public debt, the IMF said, stood at 100% of gross domestic product (GDP) at the end of 2020 but declined to an estimated 64% of GDP at the end of 2021, reflecting the impact on the nominal GDP of the sharp parallel exchange rate depreciation.
It is apparent that Zimbabwe has been failing to repay the debt, only managing to pay token payments.
With another bill set to be added to the domestic debt stock, in the form of the US$3.5 billion compensation of former commercial farmers, Zimbabwe is likely to choke.
Economist Prosper Chitambara believes the move to consider HIPC is informed by panic, in the face of a stagnant economy with not much foreign direct inflows.
“It shows that there is a bout of alarm at the rate at which arrears have been ballooning. Government thinks this is the only way of resolving this issue, given that investment inflows have been subdued,” Chitambara said.
“As long as the economy has not been growing, it is tough to repay our debts. It is also going to be more difficult if the US$3.5 billion debt to farmers is added to our foreign debt.”
Chitambara, however, adds:” Exploring HIPC is one option, but I do not think it is going to work, given the relationship we have with multilateral funders. They will look at the implementation of policy reforms. I do not think Zimbabwe will qualify.”
The HIPC is also shameful, considering government rhetoric that Zimbabwe should be an upper middle-income country by 2030.
With just eight years before 2030, the government’s goal rings hollow.
“We won’t be able to achieve vision 2030 because our economy needs to grow by at least 7% or 8% for a sustained period,” Chitambara said.
According to the IMF, the level of extreme poverty in Zimbabwe has risen and about a third of the population is at risk of food insecurity. The international community seeks improvements in domestic political conditions and economic policies to initiate re-engagement with Zimbabwe.
The HIPC Initiative was launched in 1996 by the IMF and World Bank, with the aim of ensuring that no poor country faces a debt burden it cannot manage. Since then, the international financial community, including multilateral organisations and governments, have worked together to lower to sustainable levels the external debt burdens of the most heavily indebted poor countries.
In 1999, a comprehensive review of HIPC allowed the IMF to provide faster, deeper, and broader debt relief and strengthened the links between debt relief, poverty reduction and social policies.
Of the 39 countries eligible or potentially eligible for HIPC Initiative assistance, 36 are receiving full debt relief from the IMF and other creditors after reaching their completion points. Sudan has made tangible progress toward establishing a strong track record of policy required to achieve this milestone and eventual debt relief.