‘Zim debt strategy ambitious’

via ‘Zim debt strategy ambitious’ – DailyNews Live 20 November 2015

HARARE – Diversified insurance giant Old Mutual says Zimbabwe’s target to have paid off its $1,8 billion arrears to its preferred creditors by April 2016 is ambitious and demands strong political will.

The company’s research unit, Old Mutual Securities, said Zimbabwe still has a long way to go before servicing its debts and accessing funds from international money markets,

“The Lima target is an ambitious one that can only be achieved by arranging adequate bridging financing with regional banks” Old Mutual Securities said in its manager’s digest for the third quarter of 2015 report released this week.

“Politically real commitment and will has to be shown in meeting IMF targets for access to much needed long term credit and economic recovery,” the company added.

This comes as Zimbabwe is working on a cocktail of economic strategies geared at clearing its combined $1,8 billion in arrears owed to the African Development Bank (AfDB), International Monetary Fund (IMF) and the World Bank.

However, scepticism remains on whether the southern African nation can pay back its debts, as it is presently repaying a paltry $150 000 a month.

Saddled with a $10 billion external debt, Zimbabwe has not received financial support from the IMF, World Bank and AfDB since 1999 due to its failure to pay arrears and policy differences between President Robert Mugabe and the west.

The IMF team has on many occasions reiterated that Zimbabwe needs to finalise its debt strategy in order to clear outstanding arrears to pave way for access to lines of credit.

Last month, Finance minister Patrick Chinamasa led a delegation to the IMF/World Bank annual meetings in Lima, Peru were he pitched Zimbabwe’s arrears clearance strategy on preferred creditors.

At the meetings, creditors and the Zimbabwean delegation came to the consensus that the country’s 1,8 billion arrears – IMF, $110 million, the World Bank, $1,15 billion and the AfDB, $601 million – were to be fully paid by April 2016 with Zimbabwe adopting a debt financing model to honour the debts.

According to Chinamasa, Zimbabwe had settled on a “novation of debt” strategy, whereby new debt would replace the old debt.

“International Financiers have indicated that should Zimbabwe be able to do this, the country can gain access to long-term international credit.

Old Mutual Securities noted that the persuasion to contemplate granting access to credit for Zimbabwe has been made easier by the successful completion of the 15 month SMP programme as guided by the International Monetary Fund’s Staff Monitored Programme.

However, the securities firm was quick to point out that apart from the promise of access to long term financing, government still had to continue with some of the important plans it has promised financiers.

“This includes arresting the growth in Non-Performing Loans,  Amendments to the Banking Act and RBZ Act in order to increase confidence within the financial sector. Following through with a strategy to lower the civil servant wage bill to below 40 percent of tax revenue; increasing tax revenue collection transparency and expenditure accountability as well as enhanced public sector finance management,” the company said.