“THE World Bank’s lending programme in Zimbabwe is inactive due to arrears, and the role is now limited to technical assistance and analytical work,” says a message on the World Bank website under Zimbabwe’s country profile.
This is clear enough. However, this message only shows a microcosm of the country’s debt and arrears situation. The reality is Zimbabwe’s external debt stands at US$10,8 billion (about 77% of GDP), of which US$6,8 billion is public and the remainder private sector debt. The private sector is paying its obligations, while government is not. That is why Finance minister Patrick Chinamasa and Reserve Bank of Zimbabwe governor John Mangudya are currently in Lima, Peru, to attend World Bank and IMF annual meetings to present an arrears clearance strategy on the sidelines of the gathering in a bid to secure fresh funding. The country owes multilateral lending institutions, the IMF, World Bank, African Development Bank (AfDB) and European Investment Bank, as well as the Paris Club — an informal grouping of creditor nations — and countries like China and others.
As part of its arrears clearance strategy, government has an uphill task to raise US$1,8 billion by year-end to repay and unlock fresh funding.
Although AfDB has committed to a financing scheme to help clear government’s arrears by December 2016, Zimbabwe has to make good on the deal. Harare owes the World Bank US$1,4 billion, AfDB US$639 million and IMF US$124 million.
Failure by the country, which has high political risk and poor credit rating, to secure new funding as loans, lines of credit and other sources of finance dried up resulted in the liquidity crunch wreaking havoc with a deflation-hit economy. The situation has been exacerbated by dwindling exports and lack of monetary sovereignty — the power of the state to exercise exclusive legal control over its currency — which has paralysed the central bank. Latest information shows Zimbabwe’s exports to South Africa — the country’s main trading partner — dramatically declined by 37,3% in August as the South African rand depreciated to an all-time low of around US$1: R14 largely due to a slowdown in the Chinese economy, falling commodity prices in global markets and internal pressures.
The weakening of the rand, which helps South African exporters, has hit hard Zimbabwean exporters, who use a locally overvalued United States dollar, as their exports have become uncompetitive.
Things are just too complicated for Zimbabwe: it can neither print money nor borrow anymore. Without a local currency, it has lost control of monetary policy and an important economic shock-absorber. This makes authorities’ political noises of territorial sovereignty without monetary sovereignty ridiculous.
If Zimbabwe has to continue using the multicurrency system — which it has to because it has no choice after decimating its own currency through hyperinflation, a sign of economic mismanagement — then it must earn money through exports, investment or remittances.
Since exports are diminishing, meaningful investment is not flowing in due to flawed policies and remittances are declining as the global economy slows down, Zimbabwe has no choice to but to repay arrears.