Source: Missed debt deadline – What does this mean for Zimbabwe? | The Financial Gazette January 10, 2017
By Anne Smee
AS you may well be aware, Zimbabwe recently missed its deadline to pay its four major international creditors. Zimbabwe owed the World Bank, the African Development Bank, the European Investment Bank, and the International Monetary Fund more than R30 million. In 2015, Finance Minister Patrick Chinamasa unveiled a plan to clear Zimbabwe’s debts by the end of 2016. Thus far, however, the nation has only been able to repay the International Monetary Fund. The rest of the money remains outstanding. What does this mean for Zimbabwe and its people as a whole?
Given the current, precarious financial situation, many Zimbabweans are all too familiar with the travails of debt. One of the major problems with debt is that it simultaneously blocks you from obtaining money while leaching away any funds that you do manage to earn. Sadly, the whole nation of Zimbabwe now finds itself in this position. Reneging on payback deals – even when, as in this case, they are self-appointed – reduces faith in Zimbabwe’s ability to repay loans. Which in turn severely curtails the likelihood of Zimbabwe getting any external funding at all. After all, the whole point of loans is that they get paid back. Most international economies rely to a certain extent on loans from the global financial community. Without the fallback of a loan to cover treasury shortfalls, Zimbabwe could find itself in serious trouble.
That trouble has already manifested in part in the government’s worrying inability to pay civil workers on several occasions. People camping outside banks in the hope of withdrawing the money which is rightfully theirs but which the banks are unable to provide is becoming a common sight. Zimbabwe’s banks are in the grip of a chronic cash shortage, which is in many ways linked to Zimbabwe’s out of control debt situation. The government is trying to alleviate this situation by issuing ‘bond notes’ in place of dollars – a kind of temporary currency which can only be used within Zimbabwe. However, a currency is only as good as the faith people put in it, and many distrust the bond notes. Some shops are refusing to accept them, which, unsurprisingly, means that those who cannot withdraw dollars are struggling to make purchases.
There seem to be some plans afoot to mortgage Zimbabwe’s collateral resources. Zimbabwe is not a resource-poor nation by any means, although we have been hit hard by plummeting global fossil fuel prices. Furthermore, the nation is a notable location of gold and platinum deposits, much of which remains in the possession of the Zimbabwean government. Some or all of what the treasury has could be used to procure new loans. The gold reserve, for example, could be offered to an external lender as security on a loan to tide the nation over until things improve. However, this does ultimately put Zimbabwe in more debt – as well as potentially putting the future of all of our solid resources in international hands. While it could be a workable solution if Zimbabwe can use the loan to build up the economy, it could also be a case of robbing Peter to pay Paul.
Zimbabwe has, for many years now, been treated with kid gloves by the international community. Concerns about human rights has led to caution in dealings with the nation – caution which has only been exacerbated by Zimbabwe’s recent financial troubles. Some commentators are pointing out, however, that this crisis situation does seem to have led many Zimbabwean politicians to being far more open to international solutions than they may have been in the past. Offers of help to create roadmaps and plans to alleviate the financial situation and aid the people of Zimbabwe have been listened to by Zimbabwean authorities. While it is never ideal to go cap in hand to international neighbours, if this could prove a method of rejoining the international community – well, that’s no bad thing. Plenty of nations have gone through rough times and had to ask for help from their neighbours. The international community is quick to forget economic hardships once cash starts flowing again. Despite the circumstances surrounding Zimbabwe’s re-entry to the global community, this could lead to us gaining a greater voice and more influence in international matters, which many believe we badly need.
Anne Smee is a freelance writer