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Zimbabwe’s debt crisis fast compounding

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ZIMBABWE’s debt to the African Development Bank (AfDB) could soon scale US$800 million, up from around US$600 million last year, despite Treasury’s commitment to make token payments to multilateral financial institutions, The NewsHawkscan report.

Nyasha Chingono

The southern African nation, reeling from a deepening economic crisis gripping it for the past two decades, is making frantic efforts to extricate itself from a debt overhang web after it went into arrears with multilateral creditors at the turn of the millennium.

Zimbabwe’s public and publicly guaranteed external debt stood at US$8.1 billion as at end December 2019, according to Finance minister Mthuli Ncube’s mid-term fiscal policy review.

Of the total external debt, arrears account for 73%.

Multilateral development banks are owed a total of US$2.6 billion (32% of the total public and publicly guaranteed external debt), of which the World Bank is owed US$1.5 billion, the African Development Bank (AfDB) US$705 million, European Investment Bank US$330 million and other multilaterals US$66 million.

Total bilateral external debt amounted to US$5.48 billion (68% of the total public and publicly guaranteed external debt), of which Paris Club creditors accounted for US$3.39 billion, and Non-Paris Club, US$1.58 billion.

With regards to external arrears, government has said it continues to engage respective creditors, inclusive of multilateral financial institutions for an amicable solution.

This is supposed to include implementation of a broad range of economic and political reforms necessary for stabilising and strengthening the economy.

However, not much has been done to introduce reforms and hence disengagement with international financial institutions and the international community.

As at end May 2020, domestic debt, including Zamco (ZW$1.1 billion) stood at ZW$12.89 billion.

The increase in domestic debt from ZW$9 billion as at 31 December 2019 is primarily on account of restructuring of the legacy obligations.

The external debt overhang has been a major hurdle in the country’s bid to access fresh funds from multilateral funders.

In terms of the 2015 Lima plan, government envisaged clearing the International Monetary Fund (IMF), World Bank and AfDB arrears simultaneously in line with the paripassu principles, but failed to do so.

Only the IMF’s US$107.9 million was paid.

Engagements between Zimbabwe and multilateral funders have been inconclusive, with Harare failing to provide a clear plan of repayment and securing a bailout.

“The government is in arrears to the AfDB to the tune of US$700 million upwards, but it could conservatively go up to US$800 million. Of course, there have been engagements with government and there are aspects governing the clearance of arrears we have to deal with, for example working with other development partners, the World Bank and bilateral partners,” AfDB policy analyst Eric Mariga said in an interview.

“In terms of commitment, for the whole of last year the government has been paying token payments as a sign of commitment. The token payments are not towards the arrears, but just to show commitment. Discussions are still going on whether after Covid-19 these token payments should resume.”

After coming to power through a coup in 2017, President Emmerson Mnangagwa sought to engage multilateral funders, mainly the IMF, World Bank, AfDB and the Paris Club, over outstanding debts.

Although there was progress at the beginning, the process has since stalled as funders continue to demand political and economic reforms as part of the deal.

The IMF Staff-Monitored Programme meant to push the reform agenda has also fallen off the rails as the government’s lethargic approach to change continues to unsettle the multilateral funds.

The Transitional Stabilisation Programme (TSP), which also acknowledged the need for debt repayment, is coming to an end and will soon be replaced by the National Development Strategy without addressing the country’s debt crisis.

In the TSP, the government committed to clearing the external debt by 2020.

“You know the Lima story of 2015 where there was an agreement to clear the multilateral debts. Under that agreement, the IMF debt was cleared while the AfDB and World Bank was to follow. We have had discussion on modalities for clearing. AfDB had US$500 million which was available to help the government clear the debt. We could not use that money to offset Zimbabwe’s debt because of the paripassuprinciples, which means if the AfDB loan was cleared, the World Bank loan should also have been cleared thereafter,” AfDB officer in charge Walter Odero told TheNewsHawks.

Under the arrangement, Somalia has since cleared its debt.

However, hopes of Zimbabwe doing the same have diminished after the IMF’s SMP collapsed.

“In the Zimbabwean case you know the SMP collapsed last year so the government and IMF are now engaging to see if it can be revived. We do not know if it has any timelines. We are hinging our hope that once the SMP resumes, it will then guide us on arrears clearance. Once we get the SMP back on track, we will have a clear timeline,” Odero said.

Odero added Zimbabwe’s failure to implement the SMP related to depressed economic activity, drought and the dreaded Cyclone Idai.

As part of a cocktail of measures to rescue the sinking economy, Zimbabwean authorities had proposed the mortgaging of minerals to pay arrears.

However, Odero said the government should consider sustainable means that will not rob future generations of their fair share of the country’s wealth.

“When you talk about the wealth underground, the first thing that comes to mind is inter-generational equity. We found these minerals there because the people who came before us left them there. So, our children should also find some benefit from there so that we should not just say in our time let’s mortgage everything for the benefit of ourselves and leave nothing for those coming after us,” Odero said.

“So, I think what the government must consider is the aspect of generational equity. The generations to come should benefit from the minerals in the same way this generation is benefitting.”

Last year parliament accused the Reserve Bank of Zimbabwe of illegally mortgaging the country’s gold to pay external loans. At that time Zimbabwe was channeling US$5 million a month from gold earnings to the servicing of debts, according to the Public Accounts Committee.

 

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