WHEN Zimbabwe received its International Monetary Fund (IMF) quota of Special Drawing Rights (SDRs) to the tune of US$961 million, Treasury hyped them up as the saving grace for the debt-distressed country which had been ineligible for over two decades for such funding from multilateral lenders due to non-payment of arrears.
BERNARD MPOFU
Now it is a new ball game.
Experts say high debt amid a shrinking tax base is precluding Zimbabwe from international borrowing.
The IMF raised interest rates on SDRs to 4.2% from 0.05%, thereby piling pressures on countries that had heavily relied on the quota allocations to finance the capital expenditure and social spending.
Zimbabwe says it mainly used the SDRs to buy Covid-19 vaccines and upgrade its road network, among other uses.
Zimbabwe is in debt distress and the authorities are battling to clear arrears accrued at the turn of the millennium.
A debt resolution plan is also in place, but the government’s lethargy in adopting economic and governance reforms is now seen as the elephant in the living room.
“Zimbabwe enters 2024 with public debt of cUS$18 billion that has been worsened by an increase in interest rates globally. The country’s public debt consists of cUS$13 billion of external debt and domestic debt of cUS$5 billion. The high interest rates globally have also added to Zimbabwe’s debt burden through higher SDR interest payments,” a new report by local research firm Morgan & Co says.
“As Morgan & Co Research we think that 2024 will be a turbulent year for Zimbabwe considering (i) elevated soft commodities prices, (ii) depressed metal prices, and (iii) a drought season in the agriculture, among other economic issues, and estimate a slightly weaker GDP growth of 3.1% in 2024. The political land[1]scape remains fragile considering the disputed and Sadc’s concerns regarding the nation’s electoral process, and we opine that this will deter any significant FDIs into the country.”
Finance minister Mthuli Ncube recently told delegates attending an African Development Bank virtual meeting that SDR interest rates were now chocking Zimbabwe.
“If you look at global interest rates, they have shot up, including SDRs. Even resources that we thought were concessionary are no longer concessionary and it speaks to the changing credit situation globally. We are feeling the pain of the debt service,” Ncube said recently.
SDRs are an international reserve asset created by the IMF that can be exchanged for other currencies.
A few years ago, the World Bank warned that SDRs allocated to African countries, including Zimbabwe, were not enough to shore up their economies as the nation continued facing climate crisis-related risks, weakening commodity prices as well as aftershocks of the Covid-19 pandemic.
On 2 August 2021, the board of governors of the IMF approved a general allocation of SDR456 billion (US$650 billion) to boost global liquidity.
Zimbabwe received SDR677.4 million (US$961 million) which the authorities said would ease the liquidity situation in the economy.
“The recent allocation of Special Drawing Rights (SDRs) to African countries is a good shot in the arm, but it might not be sufficient,” then said the World Bank.
“Of the US$650 billion in SDRs issued by the International Monetary Fund (IMF), about 3.6% is allocated across sub-Saharan African countries — that is, the equivalent of their IMF quota share. These additional resources are aimed at boosting liquidity and combatting the pandemic. SDR allocations are part of the solution, intended to complement rather than substitute other financing channels. The international community needs to continue exploring different options that would enable rich countries to share their surplus SDRs voluntarily with the poor countries in the region with the greatest financing needs. An extension of the Debt Service Suspension Initiative (DSSI) may help participating countries redirect their limited resources to the recovery effort.”
