…as AfDB board meets
LESS than two months before the window for accessing the African Development Bank (AfDB) bridge facility closes, Zimbabwe is frantically scrambling to secure US$600 million from the regional bank to clear its arrears and avert a catastrophic setback in efforts to rescue the sinking economy, a confidential document from the Ministry of Finance, seen by the Zimbabwe Independent, shows.
By Bernard Mpofu
The restoration of relations with international financial institutions (IFIs) and repayment of bilateral loans is the only way for the cash-strapped government to access long-term concessionary funding to halt the current economic implosion.
Before successfully clearing its arrears to the International Monetary Fund (IMF) recently, Zimbabwe owed three IFIs who enjoy preferred creditor status US$1,8 billion. The country had been in arrears since the turn of the millennium, disqualifying it from accessing cheap funding.
As time runs out, it is critical for Zimbabwe to get the money before December 31 and simultaneously clear arrears with IFIs in order to rescue the US$2 billion Lima Plan. The documents provided by senior officials Finance ministry officials show the government has written to AfDB a new proposal on how to revive the Lima Plan and how to specifically access the bridge finance.
Realising that it is no longer possible to get the money, Zimbabwe is making an unusual proposal to have the facility rolled over to next year so that it can first put its house in order by meeting the reform benchmarks which are a prerequisite for any funding from the regional bank.
Against this backdrop, Harare wants the AfDB board slated for December 7 to extend the window for it to access the bridge finance. It reportedly has the support of the British embassy in Harare which is now pushing for regime retention, not regime change as London previously tried to do.
The country has already cleared arrears with the IMF after paying US$108 million using its holdings of the fund’s Special Drawing Rights. Should the debt-ridden Zimbabwe access the bridge facility, it would require an additional US$1,2 billion to clear World Bank arrears.
“A significant portion due to AfDB and Africa Development Fund totalling about US$627 million will be refinanced through a bridge facility, whereby the AfDB’s Pillar II Fund under the Transition Support Facility of about US$548,8 million will be utilised to repay the bridge facility almost simultaneously to the lenders’ approval and disbursement of facility proceeds on behalf of Zimbabwe. In this regard, Standard Chartered shall co-finance the bridge facility with Afreximbank,” reads the confidential document.
At next month’s AfDB meeting where Zimbabwe’s arrears clearance is on the agenda, the regional bank’s board would need a letter from the IMF indicating that Zimbabwe has cleared its arrears with the fund and that the IMF Executive Board has lifted the Declaration of Non-Cooperation and restored Zimbabwe’s eligibility to the Poverty Reduction and Growth Trust.
Zimbabwe was expected to have submitted a Commitment Letter of Arrears Clearance to the World Bank Group (WBG) by October 31.
“On the basis of the Commitment Letter acceptable to the WBG, the WBG will proceed to issue a letter of no objection to AfDB by the 15th of November 2016. The residual gap of US$80 million, which will not be covered by Pilar II funds will be paid by Zimbabwe using its own resources,” the document says.
According to an AfDB internal memo titled Zimbabwe Processing of Debt Arrears Clearance Information Note for July 2016: The African Development Fund-13 Report, also obtained by the Independent, the regional bank’s deputies agreed to ring-fence Transition Support Facility Pillar II resources for arrears clearance of Somalia, Sudan and Zimbabwe on a first come, first served basis. This means time is running out for Zimbabwe to have the prerequisite reforms to access the bridge facility.
This also means should Zimbabwe, which has already missed the June 2016 deadline, fail to meet its commitment to clear the arrears the window could be closed.
The AfDB said while the government has shown commitment to implementing reforms, Harare had up to October this year to demonstrate how it wants to tackle its arrears before the facility is closed in December.
“For the AfDB, delivering Zimbabwe’s debt arrears clearance will be done in close co-ordination with the IMF and the World Bank. It will require the production of three key documents, namely a Country Strategy Paper, a Fragility Assessment and a Board Paper for the debt arrears clearance. These three documents will be submitted together for board consideration in October 2016,” the memo said. “The total resources for Pillar II amount to UA (Unit of Account) 392,29. By end of September 2016, the total arrears for Zimbabwe with the AfDB are projected at UA448,16 million. If the bank uses all of Pillar II resources for clearing the AfDB debt arrears of Zimbabwe, a gap of UA41,78 million for AfDB and UA14,10 million for ADF (African Development Fund) will remain. However, the final amount for debt arrears clearance will depend on the timing, financing plan and cut-off date as well as board approval.”
Contacted for comment on the progress of the Lima arrears clearance plan adopted during last year’s IMF annual meetings, Reserve Bank of Zimbabwe governor John Mangudya this week professed ignorance on government’s fresh proposals.
“We are waiting to hear from the ADB board. As chairman of the Debt Clearance Board, I’m not privy to that information. The ADB board operates independently,” Mangudya said in a telephone interview yesterday. “As far as I know, the arrears clearance programme is good working progress and is on course.”
Finance minister Patrick Chinamasa could not be reached for comment as his mobile phone went unanswered.
Zimbabwe requires a raft of reforms, which include reducing the fiscal deficit to sustainable levels through the alignment and reorganisation of the public service sector, to secure funding. Currently, the government wage bill accounts for 96% of total revenue. Chinamasa’s bid to reduce the wage bill announced in his mid-term fiscal policy review statement in September was blocked by cabinet.
Government is also expected to strengthen financial sector stability and confidence as well as accelerate the ease of doing business reforms and reduce the cost of doing business under the Rapid Results Approach to enhance investor confidence. Overhauling state-owned enterprises and parastatals is also critical for Zimbabwe’s re-engagement process.
The cash-strapped government is also expecting to receive US$300 million from the WBG if it succeeds in implementing its arrears clearance plan. In September, the Independent reported Zimbabwe was on the cusp of accessing exceptional support under the International Development Assistance (IDA) 17 Turn-around Regime (Tar). IDA is a unit of the World Bank Group which fights poverty by extending interest-free loans to poor countries.
According to the World Bank, this support would help Zimbabwe’s transition from persistent fragility to a sustainable development path, capitalising on renewed government commitment for reform. This allocation would also support the debt-ridden country’s re-engagement with the bank through two sequential steps: assisting Zimbabwe to clear arrears to international financial institutions (IFIs) and access finance to support structural reforms and return the country to a sustainable development path.
“An upfront condition of WBG re-engagement is Zimbabwe’s clearance of arrears of over US$1,1 billion to IDA and International Bank for Reconstruction and Development (IBRD also known as the World Bank). That said, regardless of the scope of the bank’s re-engagement, clearing arrears would be a ‘win-win’ for the WBG and the government of Zimbabwe. Clearing the IBRD arrears will strengthen the WBG’s financial position,” read a document titled International Development Association Turnaround Eligibility Note for the Republic of Zimbabwe dated July 27.