Debt relief: Zim still has much to do

FINANCE minister Patrick Chinamasa’s office sees greater hope in the private sector securing financial support from international lending partners as opposed to government.

Taurai Mangudhla

Chinamasa last week told a visiting delegation from the World Bank’s private sector lending arm, the International Finance Corporation (IFC) delegation, that the private sector, unlike government, could access funding from the IFC despite the existing arrears with international lending institutions.

“We have arrears which have militated against the World Bank giving us capital,” said Chinamasa at a press briefing last week, adding his office is now putting emphasis on the private sector.

“I put a lot of emphasis on the private sector because if they make money we also make money in the form of taxes, if they go down I also go down with them.”

This has been viewed by analysts as government’s realisation its chances of securing public funding are dwindling by the day.

Zimbabwe National Chamber of Commerce CEO Chris Mugaga said engaging the IFC is a welcome move and perhaps the only option given the indebtedness of the state and its lack of accountability.

“Any allocation towards the state will be devoured by the already existing settlement risk as government is failing to pay domestic suppliers,” Mugaga said.

The private sector is the only source of real growth to be expected this fiscal year, but a comprehensive survey of the state of industry is vital in order to inform the allocation of resources, he said.

Analysts also say Zimbabwe has no option but to deal with its arrears in order to access foreign capital, even for the private sector, as the debt overhang has also significantly downgraded the country’s credit rating, thus constraining access to concessional financing and international capital markets.

Christie Viljoen, an analyst with regional think tank NKC African Economics said Harare’s track record with the IMF and other multilateral organisation is improving, but much still needs to be done before Zimbabwe is able to qualify for large-scale external debt relief — offshore debt being amongst the biggest factors holding down the local economy.

Economist Prosper Chitambara said Zimbabwe’s debt situation remains an impediment to both external sustainability and economic development.

Chitambara said the country’s external debt has continued to outgrow exports as shown by the external debt to export ratio which increased from 168% in 2000 to 380% in 2009 declining to 225% in 2013 and 200% by 2014, Chitambara said.

“The high external debt to export ratio is of great concern because of its negative effects on investment and savings and the high ratio points to potential debt servicing problems because most of the cash required to service foreign debt largely comes from export earnings,” said Chitambara, adding the high debt-to-exports ratio also points to the fact that Zimbabwe’s debt is unsustainable and likely to be un-repayable.

IFC regional director Cheikh Seydi said arrears remained an albatross on Zimbabwe.

“Obviously we cannot ignore the complexities of the issues of arrears,” he said.

But Chinamasa said while it would take time for the visit and subsequent meetings between IFC and private players in Zimbabwe to bear fruit, government’s immediate goal was to get assistance on creating an investor friendly environment.

Zimbabwe, according to Chinamasa, has outsourced consultancy services on how to improve its investment climate following a series of poor rankings on the doing business rankings.

Seydi said the consultant comes to Zimbabwe every two to three weeks to help improve the business climate.

He said his institution can intervene in the financial service sector, infrastructure as well as the agribusiness and manufacturing sectors.

Efforts are already under way for advisory services to the small to medium enterprises in agriculture.

Market sources also say a nine-member delegation — comprising of representative from industry bodies such as the ZNCC, Bankers Association of Zimbabwe and the Chamber of Mines — is expected to go on a fundraising mission in the United States within the next four weeks.

According to government figures, Zimbabwe’s external and domestic debt as of December 2013, dating back to before 1980 when the country attained its independence, amounted to US$9,9 billion. Most of the debt relates to government guarantees on farm dam construction around the 1980s and 1990s.

The US$9,9 billion comprises US$8,9 billion external debt and US$994 million total domestic debt. Public external debt comprised 56% of total external debt.

More than US$1 billion is owed to the World Bank alone.

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