BY MELODY CHIKONO
A LANDMARK deal recently inked between white former commercial farmers and the government of Zimbabwe will make it difficult for the country to repay debts, negotiate fresh lines of credit and ask for debt rescheduling with external creditors, experts warned last week.
With a US$10,6 billion debt at the end of 2019, government agreed in August to spend a further US$3,5 billion to compensate white farmers whose land was expropriated during violent invasions in 2000.
The deal triggered fears that the country could plunge into further economic chaos, as the current debt represents almost half of its gross domestic product (GDP).
The African Forum and Network on Debt and Development (Afrodad) said it was worried that Zimbabwe, which was already failing to settle an arbitral award given to the farmers by the International Centre for Settlement of Investment Disputes (ICSID), had assumed a fresh burden.
President Emmerson Mnangagwa’s administration successfully talked down the farmers to accept a lesser figure, but a cross-section of analysts has warned that this was unsustainable.
Afrodad is worried that government has undertaken to scour global financial markets to raise funds to pay farmers for developments made on their estates before they were booted out.
“This will further worsen debt sustainability indicators and potentially complicate negotiations with external creditors to restore debt sustainability,” said Tirivangani Mutazu, senior policy analyst at Afrodad.
He spoke during a debt conference in Bulawayo last week.
“The arbitral award of 2009 (by the) International Centre for Settlement of Investment Disputes requires the government to pay €8,22 million (US$9,672 million) plus interest to claimants whose land was expropriated, and no compensation was paid. The award remains unpaid. ICSID has periodically reminded Zimbabwe of this obligation,” he said.
About US$2,5 billion of Zimbabwe’s foreign debt is owed to multilateral lenders like the African Development Bank and the World Bank, while about US$2,8 billion is owed to the Paris Club, according to a Treasury report.
Government needs to clear its arrears before it can raise more loans needed to rebuild an economy that was hobbled by the misrule of former president Robert Mugabe.
Analysts have warned that even after signing the agreement, the dispute over expropriated farms would remain until they are compensated.
Some have queried the logic behind compensating farmers in the midst of a deadly pandemic that has forced many governments to focus on beefing up their health delivery systems.
“Are our priorities skewed?” asked one of the country’s leading economists, John Robertson, when the deal was signed.
“In the midst of a pandemic with no doctors or nurses in hospitals, now we jump to farmers? Yes, there is an obligation to pay. Where is the money? We may sign many agreements, but this one for now looks like just an admission of intention to pay,” said Robertson.
At the end of 2019, total public and publicly guaranteed external debt was estimated at US$10,6 billion, which is about 49% of the country’s GDP.
About US$6 billion represented arrears.
Experts say the situation will be further exacerbated by the fact that government has been borrowing more from institutions like China Exim Bank.
Some of this debt has been collateralised against future commodity exports.
Mutazu noted that Zimbabwe’s debt build-up between 2014 and 2019 was driven by arrears.
“The country’s public debt has also been increasing due to fiscal deficits and quasi-fiscal activities conducted by the Reserve Bank of Zimbabwe (RBZ). Budget deficits increased from US$185 million in 2014 to US$2,7 billion in 2018. The RBZ has over the years been involved in public sector expenditure programmes such as the procurement of farming inputs, petroleum, medicine, grain and processed food, farm implements and electricity, among others. The widening fiscal gap has been financed through the central bank overdraft facility and domestic borrowing (has been financed) through issuance of treasury bills,” he said.
Since 2000, the country has been accumulating arrears on external debt obligations after suspending debt servicing in 1999.
External payment arrears increased from US$109 million in 1999 to about US$6,4 billion in 2019.
Zimbabwe has been unable to access funding from external creditors owing to the country’s failure to meet its debt service obligations.