EVEN if Zimbabwe has already cleared arrears with the International Monetary Fund (IMF)’s Poverty Reduction and Growth Trust after paying US$108 million on October 20 using its Special Drawing Rights holdings with the fund, as part of its Lima Plan, the country still faces a bleak 2017. Government is hoping for salvation next year through the Lima process.
Zimbabwe Independent Comment
Zimbabwe is frantically looking for US$1,8 billion under a plan adopted in Lima, Peru, last year in October, to clears arrears to preferred international financial institutions — the IMF, World Bank and the African Development Bank (AfDB) — and unlock US$2 billion in new funding.
British bank Standard Chartered Bank Plc is expected to pay half of the US$524 million — US$262 million — which Harare has to settle to the AfDB. The African Export and Import Bank (Afreximbank) will pay the balance under a refinancing scheme to clear part of the over US$600 million owed to the AfDB. Out of this, the Zimbabwe government will pay only US$82 million on its own.
Currently saddled with a debt overhang of US$10,8 billion accrued from both public and private sector borrowing, Zimbabwe’s failing economy is imploding. The country’s debt arrears amount to US$5,6 billion split between multilateral creditors (US$2,2 billion), the Paris Club, an informal grouping of creditor nations (US$2,7 billion), and non-Paris Club creditors (US$700 million). It owes the Paris Club about US$6 billion. Arrears contribute about US$1 billion and those to non-Paris Club creditors amount to US$476 million.
A significant portion due to AfDB and Africa Development Fund totalling about US$627 million will be refinanced through a bridge facility. On the World Bank’s US$1,161 billion arrears, Afreximbank will pay half of the debt, while three banks coordinated by American advisory firm Lazard Ltd will pay the balance.
Despite pinning hopes on the Lima Plan for recovery next year, Zimbabwe’s economic difficulties are deepening.
Around 262 companies have closed shop to date, according to the main union representing workers. Thousands have been thrown on the street. Cash shortages that began early this year persist to date. Production remains very low.
Capacity only increased this year to 47,4% owing to an imports ban and attendant protectionism.
On the revenue front, government is struggling. From January to October, collections stood at US$2,876 billion against a target of US$3,158, a 9,8% variance. Resultantly, a budget revenue shortfall of US$282,5 million was experienced.
Zimbabwe’s current account deficit is seen rising to US$2,8 billion this year. This has seen government borrowing on the domestic market to plug the fiscal deficit. In the first six months of the year, the fiscal deficit was US$623 million, with Treasury warning that the hole would surpass US$1 billion by year-end. Against this background, unless government embraces structural reforms the country faces a miserable and depressing 2017. Without serious political, economic and institutional reforms, it can only get worse before it gets better.