US$300m fresh funding under growing threat

Source: US$300m fresh funding under growing threat – The Zimbabwe Independent September 2, 2016

THE cash-strapped government is expecting to receive US$300 million from the World Bank Group (WBG) if it succeeds in implementing its arrears clearance plan amid growing threats to scuttle the October 2015 Lima Plan.

By Bernard Mpofu

This is contained in an International Development Association Turnaround Eligibility Note for the Republic of Zimbabwe dated July 27.

Zimbabwe is on the cusp of accessing exceptional support under the International Development Assistance (IDA) 17 Turn-around Regime (Tar). IDA is a unit of the World Bank Group which fights poverty by giving interest-free loans to poor countries.

According to the World Bank, this support would help Zimbabwe’s transition from persistent fragility to a sustainable development path, capitalising on renewed government commitment for reform. This allocation would also support the debt-ridden country’s reengagement with the bank through two sequential steps: assisting Zimbabwe to clear arrears to international financial institutions (IFIs) and access finance to support structural reforms and return the country to a sustainable development path.

“An upfront condition of WBG re-engagement is Zimbabwe’s clearance of arrears of over US$1,1 billion to IDA and International Bank for Reconstruction and Development (IBRD also known as the World Bank). That said, regardless of the scope of the bank’s re-engagement, clearing arrears would be a ‘win-win’ for the WBG and the government of Zimbabwe. Clearing the IBRD arrears will strengthen the WBG’s financial position,” the note reads.

“Zimbabwe needs a financing of US$300 million from the TAR facility to support its arrears clearance plan and current stabilisation needs. Zimbabwe’s indicative IDA 17 annual allocation of US$58 million is insufficient as a bank contribution to the government’s arrears clearance plan and cannot adequately support the country’s reform agenda.”

In April last year, government launched a joint exercise with preferred creditors — the World Bank, International Monetary Fund and the African Development Bank — to explore options to clear US$1,8 billion in arrears. This plan was presented last October in Lima, Peru, and was amended in May 2016 to include repayment of IMF arrears (US$120 million) using Zimbabwe’s Special Drawing Rights resources at the fund; repayment of IBRD arrears (US$896 million) using a term facility syndicated by the African Export and Import Bank and Lazard Frères; and repayment of IDA and AfDB arrears (US$260 and US$601 million respectively) with a bridging facility from Afreximbank to be financed from future IDA development policy operation and AfDB’s transitional support facility.

The arrears clearance plan also includes approaching the Paris Club after the IFI arrears clearance.

“The timing is critical and the stakes are high for Zimbabwe; should the current arrears and re-engagement attempt fail, this will miss a major opportunity to nurture the growing economic pragmatism and risk a return to ideology-driven policy,” the note further reads.

Government’s much-hyped debt arrears clearance strategy, the Lima Plan, which seeks to settle US$1,8 billion arrears to preferred IFIs to allow Zimbabwe to access US$2 billion in new funding, has come under threat with some lobbyists already pronouncing it dead in the water.