Source: Zim’s frayed theatre of reform – DailyNews Live
Gift Phiri 30 April 2017
HARARE – Impoverished Zimbabwe must clear $1,8 billion of debt arrears to
the World Bank (WB) and the African Development Bank (AfDB) before the
banks can start lending to President Robert Mugabe’s government,
economists have said.
This comes after Singaporean global commodities firm, Trafigura Group, has
agreed to provide Zimbabwe with $1,1billion that enables the government to
pay off its overdue debts to the international financial institutions
(IFIs).
Some Western countries, mainly the European Union, have eased sanctions
imposed on government since Mugabe started taking steps to reform the
economy.
But until now, IFIs had been prevented from making new loans to Zimbabwe
because the country stopped payments on its old loans around 1999, and is
struggling to emerge from a catastrophic recession that ran for a decade
until 2008.
Without any balance of payment support and starved of foreign credit,
Zimbabwe is running its budget hand-to-mouth, leaving it with virtually no
money to pay government workers or rehabilitate collapsing infrastructure
such as rail and roads.
Finance minister Patrick Chinamasa said he successfully presented
Zimbabwe’s plans to clear arrears to creditors at the IMF and WB spring
meeting in Washington DC last week.
A well-rehearsed yet selective narrative about progress toward clearing
debt arrears and economic revival was first presented to international
creditors at the IMF/WB annual meetings in Lima, Peru in October 2015
where consensus was reached with creditors on a repayment strategy which
entailed the clearance of the country’s $1,8 billion arrears.
The WB has been working with the government on proposed debt arrears
clearance programme, the bank said.
“The government of Zimbabwe is pleased to announce that it has met all the
conditions precedent to the repayment of debt arrears to the WB and the
AfDB,” Chinamasa said in a statement on Thursday.
“This positive development comes after the country successfully settled
its debt arrears to the International Monetary Fund (IMF) in October
2016.”
Zimbabwe last year settled the IMF’s $124 million in arrears accrued since
2000, but still owes another $600 000 to the AfDB while an additional $1
billion is characterised as WB debt.
Zimbabwe cleared the IMF arrears by special drawing rights (SDRs) of about
$130 million from the Breton Woods institution.
To honour the outstanding arrears, Zimbabwe has been borrowing from the
Afrexim Bank in Egypt before turning to Amsterdam-headquartered Trafigura,
which runs Puma Energy, and has given Zimbabwe short-term credit to be
repaid in three $400 000 batches.
Chinamasa said the terms and conditions of the facilities that the Reserve
Bank of Zimbabwe have put in place to repay the debt arrears have been
scrutinised and adjudged to be reflective of current market conditions,
with financing terms similar to market transactions recently concluded by
several sub-Saharan African countries during 2016 and 2017.
“It is on this basis that Zimbabwe can now proceed to repay its debt
arrears,” Chinamasa said.
“Clearance of debt arrears is expected to attract in the short to medium
and long term foreign and domestic investment, given perceptions of lower
country risk, and would be expected to open the door to foreign finance
inflows and possible debt treatment by the Paris Club and non Paris Club
bilateral creditors through an IMF financing programme.”
Britain, Germany, France, US and others are part of the Paris Club – a
forum where Zimbabwe’s debt to the IFIs is discussed and agreement is
reached on how to manage that ballooning debt.
Zimbabwe would have to repay $1,8 billion in debt arrears to have a chance
of new funding, without knowing if credit is available or what its
economic and political conditions might be.
Veteran economist John Robertson said government says “it has met all the
conditions precedent” and this means only that it has almost become
eligible to be considered for new loans.
“To become fully eligible, it must actually settle the debt arrears and it
must actually carry out the promised reforms,” he told the Daily News on
Sunday.
“Making more promises that it will do these things will not be enough.
“The new loans will have to be repaid and the existing loans still have to
be repaid. The only funding being spoken about now is the funding to repay
the arrears.”
University of Zimbabwe economics lecturer and Mugabe’s economic advisor
Ashok Chakravati told the Daily News on Sunday: “If we have met all the
economic conditions, that is indeed very good news.
“However, no new lines of credit can be agreed upon until we clear the
arrears …owed to WB and AfDB.”
Economic consultant Tony Hawkins told the Daily News on Sunday that
“Zimbabwe needs to undertake serious structural reforms, including
political reforms. This is a first step along a long road.”
Robertson said the government must implement wide ranging economic reforms
to boost growth if it is to be eligible for new lines of credit.
It is unlikely the government and ruling party will enthusiastically
embrace austerity reforms that would block their current populist
policies.
Any meaningful economic reform process is further hampered by internal
factionalism within Zanu PF over who will succeed Mugabe.
Reform and re-engagement is being championed by key Emmerson Mnangagwa
ally, Chinamasa, supported by Reserve Bank governor John Mangudya.
Both were in Washington DC last week to make the case that Zimbabwe was
politically-stable and open for investment.
“The lenders are demanding that the reforms will be carried out to ensure
that their loans will be repaid,” Robertson said.
“Only a successful and growing economy can afford to repay debts. The
common assessment is that the economy cannot succeed under its current
policies.
“For this reason, the reforms call for policy changes. Many policies
currently discourage investors: disrespect for property rights and civil
rights, indigenisation demands, confiscations of mining claims, protected
jobs in public service and the continuing, but condoned failures of public
enterprises, such as Air Zimbabwe and NRZ, these are just some of the
reasons why the country needs help.
“But Zimbabwe still has a lot to do to deserve the help that it needs.”
The IFIs want better governance, transparency, institutional
accountability, and human rights. These all remain key benchmarks of
tangible progress: for now, the government appears to be backsliding, only
selectively amending old laws to align them with the reformed 2013
constitution.
The ruling Zanu PF does not speak in one resolute voice about the reform
programme it is ostensibly trying to promote.
The overall strategy theoretically has the full support of Mugabe and
senior party members.
But Zanu PF feels humiliation at putting its hand back out so publicly for
help from those outside powers it still describes as its enemies.
In practice, Mugabe has been unenthusiastic and has allowed sharp
criticism to emerge from Zanu PF.
In September last year, Chinamasa got a slap down from Mugabe after
announcing a raft of measures to slash government spending in line with
the Lima plan.
Government issued a damning statement saying Cabinet had never approved
Chinamasa’s proposals, which included a suspension of civil servants’
bonuses, wage cuts, job cuts, and a range of other austerity measures.
“Blaming `the West’ for burgeoning dissent undermines those seeking
genuine re-engagement, and emboldens those who seek political capital from
opposing the broader reform agenda,” Piers Pigou, senior consultant at
International Crisis Group said.
“For critical Zimbabweans, the efforts look increasingly bogus. Claims
from the government that it has clarified its position around
controversial issues such as its indigenisation policy, property rights
and compensation for land seizures are not supported by objective
realities on the ground.”
To date, the reform and re-engagement process under the “Lima Strategy
Document” – the government’s primary plan for clearing its arrears – has
been a largely exclusive, even secretive, affair.
Hawkins also said details of the latest plan by Chinamasa was only
officially made public through sketchy details that set out a broad
roadmap, but with little detail.
The government avoids or denies challenges that it has lost public trust.
But most opposition parties, and a host of civil society actors
representing important constituencies, have little or no confidence in the
economic reform process or the government’s commitment to honouring the
new Constitution.
Tapiwa Mashakada, the opposition MDC’s shadow Finance minister, sledged
Chinamasa’s statement as “a high sounding nothing.”
“It does not contain any new information that is not already in the public
domain. We all know that the $150 million paid to the IMF was not physical
cash but SDRs that the inclusive government left at the RBZ, thanks to the
fiscal prudence and financial dexterity of (former Finance minister)
Tendai Biti,” he told the Daily News on Sunday.
“To say that Zim has met all the conditions precedent for settling the WB
and AfDB debt is being dishonest. The budget deficit is worsening;
parastatals are bleeding; the current account deficit is in a precariously
red position; GDP growth is low and the economy is still in a depression;
FDI levels are below $500 million per annum; public financial management
is in shambles; corruption is footloose; deindustrialisation is taking its
toll.”
He said the macroeconomic and fiscal framework is unstable; the liquidity
and cash crisis is unabated.
“So what market conditions could be worse than these? It is unthinkable
how Zimbabwe can service its debts when government cannot pay salaries and
bonuses.
“The US dollar is now an endangered specie, so what form of legal tender
will be used given the sharp decline in export earnings? Chinamasa’s
statement should be dismissed with the contempt that it deserves.”
If Zimbabwe follows on the debt clearance, the WB has said its board will
decide on fresh credit for Zimbabwe that would support critical reforms
being implemented by the government to strengthen macroeconomic stability,
improve public financial management and improve the investment climate.
If the country qualifies for fresh lines of credit, it will be the first
loan to Zimbabwe in almost 20 years.
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