Source: Zim lines up seven sponsors to clear arrears | The Sunday Mail
Professor Mthuli Ncube Debra Matabvu
Chief Reporter
ZIMBABWE has lined up seven potential sponsors — including individual countries, multilateral financial institutions and private financiers — to provide funding, guarantees and technical support for clearing its arrears with international creditors as part of the Government’s broader programme to settle its external obligations.
The arrears clearance process is expected to commence after a nine-month-long International Monetary Fund (IMF) Staff-Monitored Programme (SMP), which is scheduled to be signed off by the end of March.
Undergoing the SMP is a key stage in Zimbabwe’s debt resolution strategy that is expected to help the country establish a track record of sound economic governance, an essential requirement for unlocking affordable external financial assistance.
The authorities have already approached three of the seven targeted sponsors to assist in clearing Zimbabwe’s arrears, which currently stand at approximately US$7,5 billion.
Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube told The Sunday Mail that discussions with potential sponsors are ongoing.
“First of all, there is a process of negotiating the Staff-Monitored Programme with the IMF,” he said.
“That process is ongoing, but we are getting closer to finalisation of the process. Then there is the issue of the
arrears clearance itself; what happens is that once we have agreed on the SMP, in terms of the process we have chosen, we will then have that programme for a period of nine months.
“Only after nine months will we then be able to really pull the trigger on arrears clearance.
“So, the SMP is a prerequisite to the arrears clearance in the first place.”
The SMP is an agreement between a country and the IMF to monitor domestic economic policies in order to establish a track record of sound fiscal management, paving the way for future financial assistance.
Prof Ncube said the Government is already engaging potential financial sponsors that can provide bridge loans to clear arrears.
Bridge financing refers to short-term loans, often needed for just 24 hours, which enable a country to settle its arrears and unlock future funding.
“And also in parallel, while we are implementing the Staff-Monitored Programme, we have to also speak to potential sponsors,” he said.
“We have what you call a financial sponsor, which is a country that can give you a bridging loan to be able to clear your arrears.
“So, we need two or three countries for that process, and so far, we have targeted seven countries that we are already approaching and talking to.
“I have already met three finance ministers face-to-face, who are potential suitors in this regard, but I cannot say who they are.
“You can only say it when they have agreed.
“Whoever the two or three who agree, then we can reveal who they are.”
A sponsor-backed financing arrangement for national debt repayment refers to a situation where a third party — often a foreign government, international financial institution or private entity — provides funding or guarantees to help a country manage its debt repayment obligations.
In this instance, Zimbabwe has chosen the bilateral loan route, which entails a sponsor providing a loan to the country, thereby helping it fulfil its obligations to international creditors.
In return, the sponsored country agrees to certain reforms or policy changes as part of the agreement.
Other options for sponsor-backed financing arrangements include debt restructuring with international institutions, issuing debt bonds with a sponsor and debt-for-development swaps.
Far-reaching reforms
Zimbabwe launched its Arrears Clearance and Debt Resolution Programme in 2022, an initiative aimed at addressing the country’s longstanding external debt challenges.
The primary goal is to clear arrears owed to multilateral and bilateral creditors, including the World Bank, the African Development Bank (AfDB) and the Paris Club, and restore normal financial relations with international financial institutions.
Under the programme, Zimbabwe has committed to implementing a three-pronged strategy, which includes economic reforms to ensure fiscal discipline and macroeconomic stability; and governance reforms to enhance transparency and public sector efficiency.
The country has also undertaken to compensate white former commercial farmers for improvements made on farms and resolution of cases of farms covered by Bilateral Investment Promotion and Protection Agreements (BIPPAs) that were affected during the Land Reform Programme.
Zimbabwe has since made significant strides in compensating the former farm owners.
To date, over 500 former farm owners have begun receiving compensation from the Government, marking a significant step towards resolution of the legacy disputes.
The Government has approved payments to 57 former farmers who owned 94 farms protected under BIPPAs.
In addition, 444 farms have been cleared for compensation under the Global Compensation Deed (GCD), an agreement between the Government and white former commercial farmers.
The agreement stipulates that farmers will only be compensated for improvements they made on the land, and not for the land itself.
For the 94 BIPPA farms, Treasury had committed to paying a total of US$1,91 million before the end last year for the complete settlement of compensation claims for 10 of these farms.
The balance of the overall compensation will be paid in instalments over a four-year period up to 2028.
Treasury has also allocated US$331,7 million for the 444 farms cleared under the GCD.
Farmers were set to receive 1 percent of their total compensation claim in cash in 2024.
The remaining amount will be paid out over a 10-year period through Treasury Bonds, ensuring that the compensation process aligns with the Government’s fiscal capacities.
Last year, the Government had appropriated US$20 million for the compensation of BIPPA farmers, while an additional US$35 million had been set aside for GCD farms.
Former Mozambican President Joachim Chissano and AfDB president Dr Akinwumi Adesina have been appointed lead facilitators of the Arrears Clearance and Debt Resolution Programme.
Last week, they met President Mnangagwa at State House in Harare to review progress and discuss the next steps.
Speaking to the media after the meeting, Dr Adesina reassured President Mnangagwa that the AfDB remains committed to supporting Zimbabwe’s debt resolution efforts.
Despite his tenure at the AfDB ending in August, he pledged to continue championing Zimbabwe’s cause beyond his presidency.
“We have a clear timeline that has been done,” he said.
“We have paid to secure a global financial advisory firm to support Zimbabwe towards that end.
“We have also paid for a legal advisory firm that is advising the country and we are looking into how to get the bridge financing framework in place that will allow Zimbabwe to be able to clear some of the arrears that it has in multilateral financial institutions.”
Former President Chissano expressed optimism about Zimbabwe’s progress.
“So, it is about the progress that we are reaching in all the processes,” he said.
“It is a matter of continuation, and I think that soon we will have better results. I also was worried that when he (Dr Adesina) leaves, what is going to happen, but he reassured me that he personally will continue with us, but also the bank will continue with us.
“So, we are satisfied with all the measures that are being taken to stabilise the country in all forms.”
According to Treasury’s Public Debt Report, Zimbabwe’s external debt stock stood at US$12,4 billion as of September 2024.
Of this total, US$6,3 billion is owed to bilateral creditors, while US$3,2 billion is owed to multilateral institutions.
Additionally, the Reserve Bank of Zimbabwe liabilities assumed by Treasury in 2023 amount to US$2,9 billion.
Countries that have successfully used sponsor-backed financial agreements include Greece, Pakistan, Sri Lanka, Zambia and Mozambique.
Greece’s debt crisis, which peaked in 2010, was one of the most severe in modern history.
The country faced unsustainable debt levels, leading to a loss of market access and a sharp economic contraction.
To address this, Greece relied heavily on sponsor-backed financing through bailout programmes facilitated by the European Union, the European Central Bank and IMF — collectively known as the “Troika”.
Greece received three successive bailout packages totalling over €260 billion between 2010 and 2018.
The sponsors provided loans and guarantees in exchange for stringent austerity measures, structural reforms and fiscal consolidation.
The bailouts helped Greece avoid default, stabilise its economy and gradually return to financial markets.
Meanwhile, Zambia defaulted on its external debt in 2020, becoming the first African country to do so during the Covid-19 pandemic.
The country’s debt crisis was driven by excessive borrowing, falling copper prices and economic mismanagement.
Zambia sought sponsor-backed financing through an IMF Extended Credit Facility of US$1,3 billion approved in 2022.
The programme was supported by debt restructuring agreements with bilateral creditors under the G20 Common Framework, including China, France and other members of the Paris Club.
The sponsors required Zambia to implement reforms, including fiscal consolidation, transparency in debt management and anti-corruption measures.
The sponsor-backed financing has provided Zambia with a pathway to debt sustainability and economic recovery.
The country is working to finalise debt restructuring agreements with private creditors, which will be critical for restoring market confidence.
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