Government faces tough choices…after collapse of debt plan

Source: Government faces tough choices…after collapse of debt plan | The Financial Gazette August 12, 2016

ZIMBABWE has put together a new debt clearance strategy that will now require approval of the international financial institutions (IFIs) after an initial plan crumbled due to funding problems.
Zimbabwe was supposed to clear arrears to the tune of US$1,8 million with the International Monetary Fund (IMF), the World Bank and the African Development Bank (AfDB) by June in terms of an arrears clearance strategy endorsed by international creditors at an IMF/World Bank annual meeting in Peru last year.
An IMF board had supported the plan at its meeting in March, but the Bretton Woods institution’s board would now have to meet again in October to look at fresh proposals by Zimbabwe to clear the arrears.
The AfDB and World Bank boards are also expected to meet around the same time to discuss Zimbabwe’s new proposal, under which the African Export and Import Bank (Afreximbank) has pledged to help Zimbabwe scour for funders on the international markets.
A New York-based fund manager has been engaged to raise US$900 million for arrears payment to the World Bank.
The arrears to the IMF will be cleared using Zimbabwe’s special drawing rights, while that to the AfDB will come from a bridging finance arrangement from Afreximbank.
It would appear pressure is beginning to build up against Zimbabwe’s plans, particularly in the wake of recent government action against protesters calling for an end to corruption and for accountability by President Robert Mugabe’s government.
Zimbabwe is grappling with a liquidity crunch which has been worsened by shrinking exports at a time balance of payments support has been unavailable due to outstanding loan repayments to international lenders.
Moreover, there has been very little foreign direct investment due to the country’s polices such as the indigenisation programme under which foreign-owned companies are forced to cede at least 51 percent of their shareholding to blacks or government.
Under these circumstances, the possibility of Zimbabwe ever clearing its arrears is increasingly becoming remote.
For instance, a re-look at the southern African nation’s indigenisation policy and a reduction of the civil service as demanded under IMF-proposed reforms are unlikely.
The indigenisation programme was described by President Mugabe as the centre piece of the ruling party’s policies.
IMF spokesman, Gerry Rice, recently emphasised the need for the country to work on reforms that would place the country on a firm footing to renewed financial assistance.
“Irrespective of the calendar for arrears clearance, the economy needs immediate reforms to address the vulnerabilities that have come to the fore. Expeditious implementation of those reforms is critical to reverse Zimbabwe’s economic decline,” Rice said.
The IMF resident representative in Zimbabwe, Christian Beddies, said earlier this year that resumption of direct financial aid to Harare would be “a long process”.
Economist, Prosper Chitambara, from the Labour and Economic Development Research Institute of Zimbabwe, believes that because the 2018 election is around the corner, government would unlikely be “keen to implement reforms which will entail job losses for civil servants.
“The IMF wants us to pay the arrears before it can extend any funding and I don’t think we will be able to meet the target anytime soon unless some benevolent donor comes in, but that would not solve our problems because our indebtedness would remain,” said Chitambara.
Zimbabwe National Chamber of Commerce chief executive officer, Chris Mugaga, said unemployment was a huge threat to ZANU-PF’s retention of power and so there was a very unlikely chance it would trim the civil service.
“Unemployment is more threatening than inflation. I think it is a difficult path for Chinamasa to pursue. It will be politically risky,” said Mugaga
Economist, John Robertson, said the best that Zimbabwe could hope for was temporary relief.
“We have not revitalised agriculture. The indigenisation law is an Act still in the statute books and preventing the inflow of new investors.
 “I don’t see any assistance coming that is going to be of the magnitude that we need. I think we will get just emergency assistance to see us through the next month,” said Robertson.
“The best way to get the inflows we need is to attract foreign direct investment (FDI). We need FDI rather than loans. We need equity finance not loans,” he said.
Movement for Democratic Change shadow minister of finance, Tapiwa Mashakada, said: “ZANU-PF lacks both the political will and capacity to implement such reforms.”
And former finance minister, Tendai Biti, dismissed any suggestion that ZANU-PF would implement any of the key reforms being demanded by international financiers.
“The Lima process is dead. Chinamasa has failed. They have failed to implement the reforms. ZANU-PF cannot lead any process involving reform. ZANU-PF can never reform itself out of power,” said Biti.
Chinamasa has pledged to reduce numbers in the public sector to manage a wage bill that is chewing more than 80 percent of government revenue.
That, it would appear, is mere political banter rather than real commitment.By Farai Mabeza


  • comment-avatar
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