DEBT-DISTRESSED Zimbabwe is desperately pinning its hope on the Highly Indebted Poor Countries (HIPC) initiative and the mortgaging of minerals to expunge its US$18 billion burden despite the authorities painting a picture of a stronger economy, a new Treasury report has shown.
After 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 is now pursuing the HIPC model, which during the Government of National Unity was frowned upon by Zanu PF.
Now, the Arrears Clearance, Debt Relief and Restructuring (ACDRR) Strategy has been formulated and was approved in November 2021 by cabinet and Parliament as part of the 2022 National Budget.
The strategy was launched in April 2022 and shared with various stakeholders, including development partners, the International Monetary Fund (IMF), World Bank Group and African Development Bank.
The strategy outlines and explores possible debt resolution options under the HIPC Initiative and non- HIPC Initiative scenarios.
“Zimbabwe is keen to participate in the HIPC Initiative process, if the window for the HIPC Initiative eligibility is availed,” Treasury says in its latest debt bulletin.
“Should the HIPC Initiative option be not available, the Strategy outlines a combination of use of own resources (where feasible) and bridge concessional financing to clear arrears to the International Financial Institutions (IFIs). The use of own resources also entails leveraging of natural resources through monetisation of mineral resources and agricultural production.”
The 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.
With limited budgetary support, Zimbabwe has over the years relied on internal resources, grants and loans with usurious interest rates to finance some of its capital projects.
During the tenure of the power-sharing government which comprised Zanu PF and two MDC factions, hawkish Zanu PF politicians rejected proposals made by then Finance minister Tendai Biti to pursue the HIPC initiative, arguing that the country was not poor.
What is HIPC?
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.
In 2005, to help accelerate progress toward the United Nations Sustainable Development Goals (SDGs), the HIPC Initiative was supplemented by the Multilateral Debt Relief Initiative (MDRI). The MDRI allowed for 100% relief on eligible debts by three multilateral institutions — the IMF, the World Bank, and the African Development Fund (AfDF) — for countries completing the HIPC Initiative process.
In 2007, the Inter-American Development Bank (IaDB) also decided to provide additional (“beyond HIPC”) debt relief to the five HIPCs in the western hemisphere.
HIPC’s two-step process
Countries must meet certain criteria, commit to poverty reduction through policy changes, and demonstrate a good track record over time.
The IMF and World Bank provide interim debt relief in the initial stage and, when a country meets its commitments, full debt relief is provided.
First step: Decision point
To be considered for HIPC Initiative assistance, a country must fulfill the following four conditions:
- Be eligible to borrow from the World Bank’s International Development Agency, which provides interest-free loans and grants to the world’s poorest countries, and from the IMF’s Poverty Reduction and Growth Trust, which provides loans to low-income countries at subsidised rates;
- Face an unsustainable debt burden that cannot be addressed through traditional debt relief mechanisms;
- Have established a track record of reform and sound policies through IMF and World Bank-supported programmes; and
- Have developed a Poverty Reduction Strategy Paper (PRSP) through a broad-based participatory process in the country. Once a country has met or made sufficient progress in meeting these four criteria, the executive boards of the IMF and World Bank formally decide on its eligibility for debt relief, and the international community commits to reducing debt to a level that is considered sustainable.
This first stage under the HIPC Initiative is referred to as the decision point. Once a country reaches its decision point, it may immediately begin receiving interim relief on its debt service falling due.
Second step: Completion point
In order to receive full and irrevocable reduction in debt available under the HIPC Initiative, a country must:
- Establish a further track record of good performance under programmes supported by loans from the IMF and the World Bank;
- Implement satisfactorily key reforms agreed at the decision point; and
- Adopt and implement its PRSP for at least one year.
Once a country has met these criteria, it can reach its completion point, which allows it to receive the full debt relief committed at the decision point.
Countries receiving debt relief
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.
In the Southern African Development Community, Tanzania and Zambia are currently under the initiative.