Source: Debt strategy: Six options on the table – The Zimbabwe Independent May 11, 2018
ZIMBABWE has commissioned a local think-tank which is exploring six options of settling its US$12 billion external debt through negotiations led by the African Development Bank (AfDB). The process will involve other international financial institutions (IFIs) after the country’s watershed general elections in July, the Zimbabwe Independent can reveal.
By Tinashe Kairiza
Harare has been engaging British multinational bank Standard Chartered Plc and other institutions to help raise US$1,8 billion to clear arrears to multilateral institutions for the country to secure US$2 billion in fresh funding. Zimbabwe owes US$1,2 billion to the World Bank and US$600 million to AfDB. In addition, Zimbabwe owes members of the Paris Club, Afreximbank and other institutions billions of dollars.
The huge debt overhang has affected the country’s access to concessionary funding.
The Zimbabwe Economic Policy and Research Unit (Zeparu), an autonomous research think-tank established by government in 2003, is examining options the country can adopt to settle its arrears, namely debt clemency, applying for Highly Indebted and Poor Country (HIPC) status, debt commercialisation, borrowing, resource mortgaging and attracting foreign direct investment (FDI). Zimbabwe presented an arrears clearance plan to its creditors in Lima, Peru, in 2015, which was anchored on economic and structural reforms.
However, government missed its targets, while the resolve to implement the plan fizzled out during former president Robert Mugabe’s rule, partly because of Zanu PF factional wars which extended to government. But following the ascendance of President Emmerson Mnangagwa to power last year through a military coup, Zimbabwe has reaffirmed its commitment to settling its arrears. AfDB country manager Damoni Kitabire told the Independent this week that negotiations to help Harare offset its debt stock would gather steam after the make-or-break elections set to be held in July.
“Let us be a bit more realistic, elections are around the corner. That can be a distraction for any government anywhere in the world. Maybe after we are done with elections whoever will come in we will be able to say this is what they have done,” he said.
“If a government is financing an election, is organising an election that is a lot of effort, so for now things will not move as fast as we wish. Once we got through the elections phase, whoever wins will be under pressure to deliver on his mandate. So, soon after elections, there is momentum to reform.’’
Earlier this week, AfDB president Akinwumi Adesina said the continental bank was leading negotiations between Zimbabwe and various international creditors to explore viable options on how cash-starved Harare could shed its arrears. He was speaking in South Africa ahead of the International Africa Investment Forum which is set to be held in November.
The Lima debt settlement plan, that came with a raft of policy reforms including reining in government expenditure, fiscal consolidation and stabilising the volatile macroeconomic environment, was agreed by Zimbabwe and key international creditors, namely the IMF, WB and the AfDB.
However, the plan went dead in the water after Zimbabwe missed its targets, hence efforts to craft a new programme.
“We are part of the collaborative group that is talking to government in helping find a solution for Zimbabwe to settle its arrears. The collaborative group includes other international finance institutions (IFIs). So our role here is working with our colleagues in the collaborative group that include the WB, IMF and several other bilateral institutions. As Zimbabwe moves forward, it should move forward in a collaborative and coordinated manner,” said Kitabire.
“In our discussions with government, we are saying let us first investigate all the available options for settling this debt. There may be several options, but we are saying put all the options on the table, having put the options on the table, let us not rush. Let us look at the option best for Zimbabwe.
“We are looking at what other countries have done in history; we are looking at recent examples in history. We are looking at the possibility of HIPC and debt cancellation among other various historical solutions on how debt has been settled. The Zimbabwe Economic Policy and Analysis Research Unit is currently looking at about six options which include debt cancellation, going commercial, HIPC and borrowing.”
Kitabire said before the ouster of Mugabe, Zimbabwe was targeting to have settled its arrears between September and October this year. This was before the timeline was shifted because the new government had a different approach. In 2016, Zimbabwe managed to clear arrears to the IMF which stood at US$107,8 million.
Officials privy to the Lima Plan told the Independent that the plan was basically dead, and Harare is now expected to present a new programme of action after the elections. The IFIs are expected to engage Zimbabwe after the elections to craft a new programme, following Harare’s appeal for assistance at the IMF and World Bank Spring Meetings held in Washington last month.
The United States and some influential European Union members are adamant that Zimbabwe should pass the legitimacy test before accessing fresh capital.
Washington and European capitals are, among other considerations, insisting that Mnangagwa’s government — which rose to power on the back of a military coup — should first return to legitimacy by delivering credible elections, strengthening democracy and human rights, as well as ushering in progressive economic reforms. Elections, the sources say, will also determine how the IFIs and members of the Paris Club will engage Zimbabwe going into the future.
Addressing the IMF Spring Meetings in Washington DC recently, Reserve Bank of Zimbabwe governor John Mangudya presented a wide range of opportunities the country could exploit to settle its arrears, while moving the economy towards a growth trajectory.
He said the new administration’s thrust was to spruce up Zimbabwe’s image, which was battered during Mugabe’s 37 years of economic ruin.
“Government’s new thrust is premised on ease of doing business; promotion of special economic zones and industrial parks and sound market principles and protection of property rights. Please help us to rebuild Zimbabwe, we need your investments in Zimbabwe and we need long-term capital to resuscitate the economy. We are a born-again country and we are open for business,” he said.
Mangudya also used the IMF Spring Meetings as a platform to lure investors, by showcasing various investment opportunities in Zimbabwe. “Zimbabwe has a sound and well-diversified financial sector, including banking and insurance sectors. The banking sector has remained generally stable despite the various underlying macroeconomic challenges,” said Mangudya, noting that the overhaul of the indigenisation policy would also help to attract investment.
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