WHILE Zambia has received a US$1.3 billion financial bailout from the International Monetary Fund (IMF) to stabilise its economy and promote inclusive growth with a social spending focus, its southern neighbour Zimbabwe continues to sing the blues as it struggles to pay the World Bank US$1.5 billion and the African Development Bank (AfFB) US$700 million in arrears.
BERNARD MPOFU
Although Zimbabwe, which has a US$15 billion debt, has paid the IMF US$110 million arrears, it cannot receive fresh funding due to the pari pasu rule which demands that it must pay all its obligations to international financial institutions simultaneously and without preference.
The situation is also made worse by United States targeted financial sanctions on Zimbabwe. Washington DC has a huge influence on the IMF, World Bank and AfDB, hence it would block any lending to Harare until the restrictions are removed.
Zimbabwe’s northern neighbour won IMF approval for a 38-month loan programme on Wednesday, a crucial step in the southern African country’s pursuit to restructure its debts and mend an economy ravaged by past government failures and most recently Covid-19.
But the question is: Will Zambia repay the loan in future and what impact will neoliberal policies such as the Washington consensus have on Zambia?
Some analysts say given Zambia’s economic situation, the IMF loan was the only way out, but it will take an arm and leg to break the debt cycle.
The efficacy of loans given by international financial institutions to Zambia evokes a lot of memories. In 2004, the country’s then president Levy Mwanawasa weathered tough criticism for his government’s apparent kow towing to the aid conditions set by the IMF and World Bank.
The country adopted the Highly Indebted Poor Country model to break the debt cycle and here we are again.
Washington Consensus is a set of economic policy recommendations for developing countries, and Latin America in particular, that became popular during the 1980s when most countries of the global South plunged into debt distress.
The World Bank and IMF were able to promote that view throughout the developing world by attaching policy conditions, known as stabilisation and structural adjustment programmes, to the loans they made.
In very broad terms, the Washington Consensus reflected the set of policies that became their standard package of advice attached to loans. Under this consensus, typically labelled neoliberal, the operation of the free market and the reduction of state involvement were crucial to development in the global South.
Critics however said limiting state involvement and the privatisation of state-owned entities have always exposed the poor to the harsh realities of neoliberal policies prescribed by the international financial institutions.
Zambia, like most African countries, continues to face profound challenges reflected in high poverty levels and low growth.
The IMF said in a statement that the new Extended Credit Facility arrangement would provide total funding of 978.2 million Special Drawing Rights — about US$1.3 billion at current exchange rates — equivalent to 100% of Zambia’s IMF quota or shareholding.
The IMF programme aims to restore Zambia’s macro-economic stability through fiscal adjustment, debt restructuring and strengthening of economic governance.
According to the Bretton Woods institution, approval by the IMF’s executive board will unlock an immediate disbursement of about US$185 million. Zambia’s creditors led by China and France pledged in late July to negotiate a restructuring of the country’s debts, a move that IMF managing director Kristalina Georgieva had welcomed as “clearing the way” for the new fund programme.
Tony Hawkins, University of Zimbabwe economics professor, told The NewsHawks the loan was the only rational option for Zambia.
“I think for Zambia they don’t have too much choice; they have a debt problem and they need the IMF’s help,” Hawkins said in a telephone interview.
“I don’t think they will be able to solve this problem without the IMF there, so it’s a question of accepting what the conditionalities are, but normally they are the same ones.
“So I think they do have a choice on whether they like it or not. But I think it’s a sensible thing to do, given the situation in Zambia at the moment. “Zimbabwe is unable to access loans from the IMF because it is in arrears and has been in arrears for 20 years or so.”
Hawkins said in the absence of reforms in political governance and economic management, the United States, a major player in the Bretton Woods system, would veto any decision by the IMF board to extend any financial support to Harare.
Prosper Chitambara, a senior researcher at Labour and Economic Development Research Institute of Zimbabwe (Ledriz), said the granting of the loan was a badge of honour on President Hakainde Hichilema’s administration.
“I think for me, it is really a major seal of approval by the International Monetary Fund in terms of how Zambia has been managing its economy,” Chitambara said.
“The key lesson for Zimbabwe is to also follow the example of Zambia in terms of enhancing the doing business environment; in terms of enhancing economic management in general because that is what then inspires economic confidence from international financiers and also international investors. When you look at our current macro-economic numbers like inflation, they are on the very high side. Zambia’s inflation, on the other hand, has been coming down in recent times, so obviously that strengthens confidence within the economy.”
Geogieva also congratulated Zambia for carrying out a raft of reforms which made the leading copper exporter eligible for the loan.
