Bank encourages government to put economic and political reforms in place
Harare — Zimbabwe is “way behind” in clearing its $700m arrears to the African Development Bank (AfDB), the bank’s top official in Harare told Business Day last week.
Zimbabwean finance minister Mthuli Ncube had hoped to clear the arrears owed to AfDB and the World Bank by the end of 2019 to qualify for new loans from international financial institutions. But instead the country has succeeded only in growing its arrears.
In an interview on the sidelines of a $10m tax grant signing ceremony in Harare, AfDB Zimbabwe country manager Damoni Kitabire said the country’s arrears, which stood at $650m in 2018, are now $700m.
He said Zimbabwe needs to do more in servicing its debt. “The arrears are now just about $700m. Admittedly, we still have a way to go, because they are way behind. Maybe this is something that government needs to improve on.”
The AfDB Zimbabwe country manager encouraged Ncube to put “the right macroeconomic environment” in place to find solutions to the country’s economic challenges. Kitabire said Zimbabwe also needs to have the right political environment to lay the platform for the recovery of its economy.
Previously, Ncube has said Zimbabwe is undergoing economic reform under a three-year transitional stabilisation programme, which is expected to be completed at the end of this year.
But Kitabire said Zimbabwe has been slow in implementing the so-called reforms.
“We expected them to do more and we expected them to do it faster in terms of the economic reforms. But you must understand that they also faced challenges such as drought, which has affected the whole of Southern Africa. They have also faced cyclone Idai, which affected their performance.”
In 2019 Zimbabwe suffered its worst economic decline in a decade with its economy hit by inflation that stood at more than 400% at the end of the year.
When price increases spiralled out of control in August 2019, Ncube suspended publishing of the country’s official inflation figures until February 2020.
Asked about Zimbabwe’s inflation prospects for 2020, Kitabire was cautious. “It’s still early in the year, but we will wait for February. Perhaps we need to see how the rains will fall, because Zimbabwe’s economy is dependent on agriculture.”
After getting into office amid much hype in 2018, Ncube, a former Oxford and Wits economics professor, said Zimbabwe aimed to clear its $2bn with the AfDB and World Bank by 2019 with the hope that it would secure support of international creditors and donor countries.
Ncube said at the time: “My intention is that by this time next year [October 2019] we would have paid off the AfDB and World Bank. All options are on the table, including the highly indebted poor country (HIPC) option debt write-off, or the HIPC-lite or the ad hoc solutions, with sponsors.”
Ncube was not immediately available for comment but he has frequently said the country is struggling to settle its obligations because it has not been receiving international funding for its reform agenda.
Economist and trade adviser to Zimbabwe’s government Gift Mugano said the country has the capacity to raise foreign currency to settle its arrears but is failing to do so due to corruption and financial indiscipline.
“The country has been running on the two deficits, which are the current account deficit and the budget deficit, and as a result has been failing to balance its books to have extra money to service its arrears.
“However, there is also the third factor of corruption. Zimbabwe relatively has a large pool of foreign currencies but the money goes into the hands of a corrupt few. This is because the interbank market where foreign currency is supposed to be traded is virtually defunct, with most of the forex going to the parallel market.”
Mugano said the country also wasted foreign currency through “unnecessary imports such as luxury vehicles and toothpicks” among other non-essentials.
In the past 20 years, Zimbabwe has been blacklisted by international financial institutions because of its legacy debts.
Zimbabwe’s total debt stands at about $20bn, with about $11bn owed to external creditors, while the remainder is domestic.