GOVERNMENT is pulling out all the stops to rescue and revive its Lima Plan arrears clearance strategy ahead of the African Development Bank (AfDB) board meetings slated for December 7 as the debt-ridden country seeks to settle outstanding obligations in order to secure US$2 billion in fresh funding.
By Bernard Mpofu
With just over a month before the window for accessing the 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 bail out the sinking economy.
Before successfully clearing its arrears to the International Monetary Fund (IMF) recently, Zimbabwe owed three international financial institutions (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.
However, the issue of economic, institutional and policy reforms remains a stumbling block for Zimbabwe which is badly in need of funding to halt economic implosion.
Information gathered by the Zimbabwe Independent shows that the government is making frantic efforts to convince the World Bank and AfDB that it is still committed to paying the arrears. Initially, the country wanted to settle the arrears by June this year, but the deadline was later shifted to December.
Sources close to the developments said government is now expected to pay AfDB arrears by January 2017 and World Bank arrears by March.
Zimbabwe has already tabled an unusual proposal to have the US$600 million AfDB facility rolled over to next year so that it can first put its house in order by meeting the reform benchmarks which are a pre-requisite for any funding from the regional bank.
Against this backdrop, Harare wants the AfDB board meeting slated for December 7 to extend the window for it to access the bridge finance. It reportedly has the support of the British government and its Harare embassy which is now pushing for regime retention, not regime change, as London desperately tried to do previously.
Documents gleaned by the Independent also show that Reserve Bank of Zimbabwe governor John Mangudya last week wrote to Paolo Belli, the World Bank’s acting country director for South Africa, Lesotho, Botswana and Zimbabwe, recommitting to the Lima Plan despite earlier indications that the programme had been sabotaged due to a strong lobby against it.
Sources said Zimbabwe is now waiting for a comfort letter from the World Bank, which is expected to be delivered to the AfDB by November 30 ahead of its board meetings. The southern African nation is also expected to furnish the World Bank Group (WBG) with its reform progress report and economic development strategy.
“The clearance has been pushed to January 2017 to ensure that the arrears clearance to the remaining IFIs, the World Bank and the AfDB are settled as closely as possible whilst at the same time giving sufficient time to the World Bank to provide a comfort letter required by the AfDB to proceed with their board approval,” reads part of a letter written to Belli dated November 17.
Mangudya could not be reached for comment as his phone went unanswered.
This comes after Belli wrote to Zimbabwe seeking clarity and progress on the arrears clearance plan. 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 from the RBZ.
Zimbabwe was expected to have submitted a Commitment Letter of Arrears Clearance to the WBG (World Bank Group) 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 Pillar II funds will be paid by Zimbabwe using its own resources,” the document says.
Sources said while it appears as though the Lima Plan has been revived, delays in implementing reforms proposed to the IFIs ahead of full engagement with the international community could scuttle Zimbabwe’s access to concessionary funding.
Zimbabwe requires a raft of reforms, which include reducing the fiscal deficit to sustainable levels through the alignment and re-organisation of the public service, to secure funding.
Currently, the government wage bill gobbles up 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.