HomeBusiness DigestZimbabwe’s Debilitating Debt at US$5,4 Billion

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ZIMBABWE’S total debt including arrears was at US$5,4 billion as at October 31 2009 Finance Minister Tendai Biti said on Wednesday.

Cabinent has been deeply divided over the debt and arrears clearance strategy proposals currently under government consideration, as Zimbabwe battles to extricate itself from a huge debt trap.
“The country’s total debt including arrears as at October 31 2009 was US$5,417 billion. Of this amount external payment arrears were US$3,839 billion,” Biti said when presenting the 2010 National Budget
“Government arrears alone are US$2,34 billion whilst parastatals accounted for US$895 million, Reserve Bank, US$568,8 million and private sector US$34,4 million,” he said.
The division between Zanu PF and Movement for Democratic Change ministers has left Biti’s debt-relief proposal facing stiff resistance from his colleagues who claim it is “ill-advised”.
Biti had produced a comprehensive document on debt and arrears clearance which is under government discussion.
The proposal sparked a fierce row among cabinet ministers. The situation is fuelled by clashes over the International Monetary Fund (IMF)’s US$510 million liquidity bailout for the country.
Biti and Reserve Bank governor Gideon Gono as well as ministers are fighting over the control and utilisation of the money.
Zimbabwe currently needs up to US$10 billion for economic recovery. It is officially estimated the country needs US$45 billion for the next 10 years to recover to 1997 gross domestic product (GDP) levels.
In his document, Biti had proposed four debt and arrears clearance options which entail using internal revenue inflows, resource-based debt restructuring, Paris Club debt-rescheduling, and the Heavily Indebted Poor Country Initiative (HIPC) for consideration by cabinet. He however suggested that HIPC was the best option because the other options did not offer Zimbabwe a “holistic and viable approach to its debt and arrears problem”.
Biti has been proposing that Zimbabwe should adopt HIPC because it has some advantages which could reduce the country’s debt burden by 90% after full delivery of debt relief.
He is on record saying it is based on the experiences of 35 countries for which packages have already been approved and debt servicing declined by 2,5% of GDP between 1999 and 2007.
Biti argues debt relief would reduce constraints on economic growth and poverty imposed by the debt-servicing burden.
He said before adopting HIPC, eligible countries were on average spending slightly more on debt than on health, education and other social services. Biti further says the huge debt overhang is increasing Zimbabwe’s credit-risk profile while undermining investment and growth.
The IMF will this month review Zimbabwe’s overdue debt as it emerged that the country is failing to cooperate on payments to the global lender.
Zimbabwe owes the IMF special drawing rights 89 million (about US$139 million) from the Poverty Reduction and Growth Facility Exogenous Shock Facility (PRGF-ESF) Trust.
The country was recently allocated US$510 million by the IMF as part of a bail out package for all the institution’s members in response to the global financial crisis.
But Biti and Reserve Bank governor, Gideon Gono have differed on how the money should be deployed. Biti says if used recklessly the money would worsen Zimbabwe’s foreign debt.
According to a recent IMF paper — Review of the Fund’s Strategy on Overdue Financial Obligations — three countries namely Zimbabwe, Somalia and Sudan remained in protracted arrears to the fund as at the end of June 2009.
Protracted arrears are those that have been outstanding for six months or more.
Two members, Somalia and Sudan, have accumulated arrears dating back to the mid-1980s and account for 18% and 75% of total arrears to the fund respectively.
Zimbabwe, which has been in arrears to the PRGF-ESF Trust since February 2001, accounts for the remaining 7 %.



Paul Nyakazeya

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