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Eric Bloch: Managing the Debt Burden

ALTHOUGH not publicly released, a comprehensive assessment of Zimbabwe’s considerable debts, and possible ways of addressing them, has apparently been prepared by the Minister of Finance, Tendai Biti, according to various authoritative sources.

Last week’s issue of the Independent reported that the minister’s detailed evaluation of Zimbabwe’s backbreaking debt burden, and of ways of reducing it, is presently under governmental consideration.

However, indications suggest a massive divide in the political hierarchy as to the pursuit or otherwise of minister Biti’s recommendations, and that (as is unfortunately usually the case in Zimbabwe) the divide is fuelled by self-interest on the part of some politicians, instead of the best interests of the Zimbabwean people.

Zimbabwe’s accumulated debt approximates US$5, 7 billion, of which US$5, 2 billion is foreign debt.

Of Zimbabwe’s external liabilities, US$3, 6 billion is considerably overdue for settlement, and Zimbabwe’s coffers are presently so barren that there are no prospects of Zimbabwe remedying its payment defaults in the foreseeable future. Commendably, the minister is very concerned at this distressing circumstance, and is cognisant of the need to resolve Zimbabwe’s arrear status as rapidly and effectively as possible. To that end, if the “informed leaks” have substance, he has identified four alternative strategies, being:

Applying government’s revenue receipts, to a material extent, towards progressive reduction of its debts. However, he is very conscious of the relatively minimal extent of revenue inflows, which do not suffice to meet the ongoing costs of government.

Concurrently, the state cannot even fund full payment of public service salaries, let alone the costs attendant to provision of the people of Zimbabwe with education, healthcare and social welfare, to ongoing administration costs and innumerable other governmental costs.

Resource-based debt restructuring: Regrettably, this strategy cannot readily and expeditiously be implemented as, on the one hand, all resources are desperately needed as vehicles for the critically-needed economic recovery and, therefore, diverting them to support debt-restructuring would be an impediment to achieving that recovery.

On the other hand, any negotiations for such restructuring of debt would inevitably be very protracted, and yet the debt arrear issue needs resolution as rapidly as possible, in order that Zimbabwe regain an internationally acceptable credit rating, attain international support and be accepted as a desirable investment destination.

Debt rescheduling, negotiated via the Paris Club. The world’s major creditor nations constitute the Paris Club, and have aided various heavily indebted nations by restructuring and rescheduling debt.

However, with the magnitude of the political differences that continue to characterise those in authority in Zimbabwe, there is no certainty that the Paris Club would agree a programme of Zimbabwean debt-rescheduling, especially so as the international community justifiably remains uneasy at the pronounced disregard for law and order, and for human and property rights in Zimbabwe.

There is also the continuing defaults in honouring Bilateral Investment Protection and Promotion Agreements (Bippas). In addition, the Paris Club negotiations would, in all probability, be extended, whereas Zimbabwe urgently requires resolution of its debt crises.

Recourse to the Heavily Indebted Poor Country initiative (HIPC), whereby the major lender states could, if applied for and satisfactorily negotiated, effect very considerable debt-forgiveness, which could reduce Zimbabwe’s total external debt by up to 90%. To date at least 35 of the world’s heavily indebted countries have substantially benefited under HIPC.

It is widely reported that minister Biti strongly contends that HIPC is the best option for Zimbabwe, stating that the alternatives do not accord Zimbabwe a “holistic and viable approach to its debt and arrears problems”. In this contention minister Biti deserves unequivocal support.

He rightly emphasises that HIPC debt relief would yield a “holistic and viable approach” to Zimbabwe’s debt circumstances, significantly diminishing the extensive current restraints upon economic growth and poverty reduction. Adding to this, he rightly contends that following upon debt forgiveness, Zimbabwe’s sovereign risk profile would be greatly improved, resulting in Zimbabwe becoming creditworthy and able to attract investment.

Acknowledging realities, he said that it would be immoral to use Zimbabwe’s limited resources to pay its debts, “largely caused by mismanagement, corruption and theft when our schools, hospitals and roads are in a bad state”.

Despite the irrefutable substance and merit of the minister’s recommendation, various Zanu PF ministers are reported to be determinedly opposed to it, on grounds that doing so would “open the floodgates to foreign interference”, not just in Zimbabwe’s economic affairs but also in its politics.  They contend that an HIPC initiative would “be used by Western countries as an instrument of regime change”.

With that contention they demonstrate yet again their extreme paranoia and, even more so, their intractable determination to remain in power, irrespective of the negative consequences upon the country and its populace of not pursuing the only practical way of dealing with the country’s crippling burden of debt.

They are once again proving that they are readily willing to sacrifice the best interests of the nation to protect their own desires and wishes. Concurrently, they do not even suggest any practical alternative paths to be followed to deal with the gargantuan debt arrears that they caused Zimbabwe to accumulate.

And undoubtedly they have decided — consciously or unconsciously — that as the economic recovery is hindered by the country’s ongoing debt-servicing default, they will attribute all culpability to the international community. They will deliberately contend that the tardiness of economic recovery is partially attributable to the continuing huge debt arrears, and will strive to deflect any suggestions of their being even remotely responsible for continuing national poverty and suffering.

Presumably, it is mainly this circumstance which provokes minister Biti to reject proposals of the African Export Import Bank (Afreximbank) for Zimbabwean settlement, over a two year period, of arrears of US$55,95 million, notwithstanding that if such proposals were accepted, Afreximbank would immediately advance US$300 million as a strategic sector facility.

The minister’s reluctance is understandable, for he recognises the immorality of Zimbabwe once again making debt-settlement commitments which, based upon past performance, it may not be able to honour.

And yet it is also tragic, for the offered new loan is desperately necessary as one of the fuellants of Zimbabwe’s accelerated economic recovery.

Were the minister not confronted by the Zanu PF destructionism to his proposed pursuit of an HIPC debt-forgiveness initiative, he could in good faith agree to Afreximbank’s proposals, and combined, such initiative and proposals would be major contributors to the long-awaited, intensified economic recovery.

Eric Bloch

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