ZIMBABWE will present its arrears clearance plan on the sidelines of the African Development Bank (AfDB) meeting in Lusaka Zambia which ends today amid a growing financial crisis characterised by a tightening liquidity crunch and cash shortages.
The theme of the meeting, which is being attended by a Zimbabwean delegation led by Reserve Bank governor John Mangudya, is Energy and Climate Change.
The debt-ridden government mapped out a plan at the October 8 2015 creditors meeting in Lima, Peru, to break free from an unsustainable debt-trap in a bid to avert an economic implosion.
The country has a debt overhang of US$10,8 billion accrued from both public and private sector. The public debt amounts to US$5,6 billion, split between multilateral financial institutions (US$2,2 billion), the Paris Club (US$2,7 billion) and US$700 million to the non-Paris Club.
The country’s external debt strategy implies clearing external debt arrears to International Financial Institutions (IFIs) to the tune of US$1,8 billion. Under this repayment plan, the three IFIs — World Bank, International Monetary Fund and AfDB — would be repaid simultaneously because they are considered creditors which should be treated equally.
As part of the country’s repayment strategy, Zimbabwe will secure US$819 million bridge finance from the African Export-Import Bank (Afrexim bank) to repay arrears to the AfDB (US$585 million); African Development Fund of the AfDB (US$16 million) and US$218 million to International Development Association (IDA). The IDA is a World Bank fund for poor countries.
To get new funding from the AfDB, Zimbabwe — classified as one of the vulnerable economies on the continent together with Sudan, Somalia and Eritrea — needs to clear its arrears first before the end of this year when the funds are still available.
Former Finance minister Tendai Biti said there are a number of aspects the country needs to address if the repayment plan is to have any significant benefit for the country.
“We need uniformity and inclusion, but the current political order is based on coercion and massive discord in the ruling Zanu PF party. This does not bode well,” he said.
Biti said there is also need to address the human rights deficit as evidenced by the abduction of journalist-cum-activist Itai Dzamara by suspected state agents in March last year to revamp the country’s battered image.
The former finance minister also prescribed a cocktail of measures which include reducing the wage bill to 30% of expenditure, repealing the indigenisation law and restoring land rights.
Economist John Robertson said the repayment of arrears to multi-lateral financial institutions will “not result in the IMF to immediately pouring billions of dollars into the country”.
He said there is need for government to keep its promises which include removing indigenisation regulations and giving farmers bankable leases.
Economist and Bulawayo South MP Eddie Cross said Mangudya and Finance minister Patrick Chinamasa’s task was virtually “mission impossible.”
“Chinamasa and Mangudya have been misleading the IMF. They did not discuss the introduction of bond notes which they announced after the IMF meeting,” Cross said. “I would not be surprised if they were shown the door by the IMF.”
The IMF at its executive board meeting last month commended the government for the successful implementation of the economic policies under the third staff-monitored programme despite difficult domestic and external circumstances.
The Bretton Woods institution, however, noted that going forward, authorities should reduce the size of the wage bill to re-orient spending towards priority capital and social outlays; improve debt management, develop a comprehensive public financial management strategy, and strengthen value-added tax policy and key processes in revenue administration.
The IMF added that government needs to improve the business environment by, among other things, transparently and consistently applying the indigenisation policy.