An IMF team will be in the country next month for its regular Article IV consultations, which sources said would among other things seek to ensure that government moves on tackling its soaring debt.
Finance ministers and central bankers from around the world are in Washington this week for the semi-annual meetings of the IMF and World Bank. Finance minister Tendai Biti and Reserve Bank governor Gideon Gono are attending.
The IMF has proposed its Heavily Indebted Poor Countries debt relief strategy for Zimbabwe that would entail a substantial amount of debt forgiveness provided the country met a number of preconditions.
But the proposal has been met with mixed feelings in the country’s shaky inclusive government, with Zanu PF elements dead set against it while the two MDC’s are in support.
Among some of the thorny requirements for Zanu PF are that the country must establish a track record of reform and sound policies through IMF and World Bank supported programmes.
However, Zanu PF views these programmes, which usually include economic policy changes and austerity measures, as too demanding and unacceptable. The party even suspects they are part of an agenda to topple President Robert Mugabe using economic instruments.
The issue of how to tackle the debt issue has therefore further complicated relations in the inclusive government. As a compromise, the coalition government has instead adopted a debt management proposition that combines leveraging the country’s national resources and selling off state enterprises under the Zimbabwe Accelerated Arrears Clearance Debt and Development strategy.
Sources say the IMF would however want to see a practical and convincing debt management strategy and wants to see government revising its strategy. While government is convinced its strategy will work, the IMF feels the size of the debt and Zimbabwe’s tight cash budget does not support its plan. The same sources say Zimbabwe’s debt management strategy is not practical, a development that will see the debt overhang worsening.
According to Zimbabwe’s Accelerated Arrears Clearance and Debt Development Strategy (ZAADS), the country’ external debt amounts to US$7 billion, which translates to 103% of the country’s GDP.
Of this global amount, the country owes the African Development Bank (AfDB) US$550 million, the World Bank US$1,5 billion and the Paris Club US$3,3 billion. In terms of the split of the multilateral debt, the World Bank is owed 45%, AfDB 21%, IMF 22% and the EIB 9%. The Paris Club makes up 85% of the bilateral debt.
While Zimbabwe has largely achieved economic stability, the debt issue remains the only macro-convergence figure that the country is not complying with. Government’s plan of leveraging the country’s natural resources in pursuit of economic development would entail finalising the new Mining Legal Framework, carrying out a geological minerals survey, as well as establishing a framework which incorporates development funds for the benefit of communities.
On completion of the leveraging processes, government expects to re-engage the international community on the removal of sanctions, re-engage creditors for the clearance of arrears and debt relief, and also re-engage the IMF and other multilateral institutions.