FOLLOWING Finance minister Patrick Chinamasa’s mission to the World Bank annual meetings in Lima, Peru, last week to present government’s external arrears clearance strategy to bilateral and multilateral creditors, an opportunity has now arisen to sort out the problem to unlock new funding to our impoverished country. Zimbabwe’s external debt stands at US$10,8 billion, which is about 77% of GDP.
Last week government agreed with multilateral creditors on a strategy to clear arrears amounting to US$1,8 million by next April, meaning it has to repay the IMF US$110 million, World Bank US$1,15 billion and AfDB US$601 million by the deadline. Zimbabwe also agreed to a new comprehensive and long-term financing plan to ensure economic growth and debt sustainability. In a rare occasion of goods news, the IMF also said the country’s economy could bottom out by 2,7% next year — breaking the current debilitating recession trend.
However, fears abound with the current political instability and uncertainty positive growth might still not happen and the recession will persist. Government will also engage the European Investment Bank, Paris Club and non-Paris Club bilateral creditors on debt resolution on the strength of its performance on agreed targets. Harare is also seeking debt rescheduling under the Paris Club aegis.
This came as authorities have intensified their re-engagement with the international community, with the immediate aim of resolving arrears with the international financial institutions, despite desperate attempts by ill-advised Zanu PF ideologues and hardliners to scuttle the initiative. Strong support from the Lima meeting, effective completion of the Staff-Monitored Programme (SMP) and continued commitment to reform has set the stage for advancing the re-engagement process, something we have been urging in our editorials for years now. As the IMF said, the policy reform agenda for the remainder of the SMP demands that government must mitigate the impact of this year’s adverse shocks on the external position and growth; improve the investment climate; restore confidence in the financial sector; and garner support for the strategy to clear arrears.
Zimbabwe is facing a dire situation as economic and financial conditions remain difficult because of inadequate external inflows given the arrears situation, low commodity prices which have kept liquidity conditions tight, and an appreciating United States dollar.
As growth went down for more than two successive quarters, recession set in and unemployment exacerbated, while the informal sector burgeoned with mushrooming street vendors. The external position remains precarious with very low levels of international reserves, and the country remains mired in a debt crisis.
Risks to the outlook stem mainly from fiscal challenges, weak global commodity prices, adverse weather conditions, and inconsistent policies in an unstable political environment. However, further advancing reforms and re-engaging could reopen Zimbabwe’s access to new funding to reverse the prevailing adverse trend.
Now the ball in is Zimbabwe’s court and authorities must not squander this great opportunity to re-engage and get new funding to resuscitate the moribund economy.