via IMF warns Zimbabwe against non-concessional loans 16 July 2014 by Ndamu Sandu
THE International Monetary Fund (IMF) has warned Zimbabwe against contracting new non-concessional loans as the move poses risks for debt relief with creditors.
This comes as Zimbabwe has exceeded the $330 million ceiling on non-concessional external debt set under the IMF‘s supervised economic reform plan — Staff Monitored Programme (SMP).
In June last year, IMF agreed to an SMP — an informal agreement between country authorities and the IMF staff to monitor the implementation of the authorities’ economic programme — to help the country out of the woods.
The new loans were from China Eximbank ($319 million) and India Eximbank ($28,6 million).
In a report after the annual Article IV consultation, IMF said the new loans fell short of the required weight in terms of concessionality.
The weighted average concessionality of the loans was 26,5%, falling short of the minimum 35% requirement.
Concessional loans are priced cheaply unlike commercial loans and repaid over a long period of time like 20 years.
“Although the authorities needed to urgently address energy and water supply constraints, a more proactive collaboration with Fund staff could have prevented the marginal breach of the SMP continuous ceiling on non-concessional external debt of $330 million in November 2013,” IMF said.
“Moreover, new non-concessional borrowing poses risks for debt relief discussions with creditors down the road.”
Zimbabwe is currently in discussions with its creditors on how to resolve the country’s $9,9 billion domestic and external debt.
IMF said Zimbabwe had agreed to primarily seek grants and concessional borrowing to finance critical development projects with high economic returns.
“If grants and concessional borrowing are not available or insufficient, limited new non-concessional external debt could be considered for growth-enhancing projects, subject to a continuous ceiling of 3% of GDP [Gross Domestic Product] in 2014,” IMF said.
It said Zimbabwe had reaffirmed its commitment to seek independent assessment of the economic and social impact of projects funded with non-concessional loans.
Zimbabwe will also consult IMF staff if and when new feasible projects and borrowing opportunities emerge.
IMF said Zimbabwe has reaffirmed the objective to reach agreements with creditors on reconciled external debt data, ideally before September 2014.
The African Development Bank (AfDB) is set to convene a forum to resolve the country’s external debt which has hamstrung the flow of lines of credit needed to reboot the economy.
Zimbabwe owes IMF $125 million, AfDB ($655 million inclusive of arrears) and $1,4 billion to the World Bank.
It also owes Paris Club members $3 billion and non-Paris Club ($692 million).
Zimbabwe has been making monthly payments of $150 000 to the IMF’s Poverty Reduction Growth Trust.
The country is also making quarterly payments to the World Bank ($900 000) and to the AfDB ($500 000).
Government has maintained a tough stance on borrowings giving Treasury powers to put final signature on all publicly guaranteed loans by parastatals and local authorities.
It will also set up the Zimbabwe Debt Management Office (ZDMO) to maintain a comprehensive and credible computerised database of all public and publicly guaranteed external debt.
ZDMO will also formulate debt management policy and strategy and advise the minister on all debt-management issues.
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