Source: Implement Lima plan, EU urges Zimbabwe | The Financial Gazette January 25, 2018
THE EUROPEAN Union has advised President Emmerson Mnangagwa’s new government to repay its debt to multilateral institutions to allow for full integration with the international community.
EU ambassador to Zimbabwe, Philippe Van Damme, told The Financial Gazette that it was crucial for the southern African country to rebuild confidence by paying its debts.
“It’s extremely important that government delivers and starts also engaging with international financial institutions regardless of the different reforms envisaged,” he said.
The EU envoy said the implementation of the Lima plan — a debt repayment plan outlined to international creditors on the sidelines of World Bank and International Monetary Fund annual meetings in Lima, Peru in 2015 — would help Zimbabwe get the much needed fresh capital to jump-start its economy.
“It will also be extremely important for the government to engage with the International Monetary Fund (IMF) on these reforms so that in the shortest possible time, between now and the end of the year, it can start accessing new funding and access the international capital markets,” he said.
In 2015, Zimbabwe committed to pay off its US$1,8 billion arrears with the IMF, World Bank and the African Development Bank as a pre-condition to accessing new lines of credit, but has so far only managed to clear overdue amounts owed to the IMF.
But the plan stalled amid increased in-fighting and dysfunctionality in the former president, Robert Mugabe’s government, mainly over his succession.
Mugabe, who did not show any public support for the Lima plan, was eventually forced out of power by his party and the military last November, to be replaced by his former deputy, Emmerson Mnangagwa, who is considered to actively support the debt clearance programme.
Both Mnangagwa and Finance Minister Patrick Chinamasa have indicated plans to revive talks with multilateral institutions for debt relief.
The International Monetary Fund estimates that Zimbabwe’s foreign debt is US$9,4 billion, or 52 percent of gross domestic product, and it is forecast to rise to more than US$10 billion this year.
“We are going to re-engage in a very serious manner with international partners, not just economic engagement, but also normalising political relations with those countries,” Chinamasa said.
Government is also expected to strengthen stability and confidence in the financial sector as well as accelerate ease of doing business reforms and reduce the cost of doing business under the Rapid Results Approach to enhance investor confidence.
In the absence of external support, the previous administration had proposed the mortgaging of mineral resources as an alternative to clear World Bank arrears.
The IMF has warned against this option.
“Collateralising gold proceeds could complicate future debt relief. The key question is the timing and quantity of new financing that the arrears clearance could unlock. Assessing this matter has proved challenging amid uncertainties over the strength of policies to restore sustainability and the appetite for support at the Paris Club,” the IMF said in a report on Zimbabwe.