AS next year’s elections beckon, the country’s arrears clearance programme could be scuttled, with Reserve Bank of Zimbabwe governor John Mangudya revealing that Harare will only settle its arrears with the World Bank and African Development Bank (AfDB) after adopting a raft of confidence-building reforms.
Despite announcing that Zimbabwe had secured funding to clear the US$1,4 billion arrears to the World Bank and US$600 million owed to the AfDB, the central bank chief said more has to be done to ensure that the country meets the pre-requisites of settling the arrears.
Mangudya said while the country had made great strides in financial sector reforms, more needs to be done to address the confidence-building reforms which he said are now the only outstanding issue. Zimbabwe presented its arrears clearance plan to its creditors in Lima, Peru, in 2015, which was anchored on several financial sector and structural reforms.
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, making it ineligible to access cheap funding.
However, the issue of economic, institutional and policy reforms remains a stumbling block for Zimbabwe which desperately needs fresh funding to halt economic implosion.
Mangudya said clearance of the country’s external debt arrears to the AfDB, World Bank and European Investment Bank remains high on the bank’s agenda, following the clearance of the arrears to the IMF on October 20 2016.
He said government had secured a syndicated loan to settle the World Bank arrears. He would not be drawn into divulging the terms.
Clearance of arrears to these three IFIs is expected to reduce Zimbabwe’s negative country risk premium which is essential to unlock new external sources of financing for the country.
“All the financial sector reforms have been done to the satisfaction of all parties involved. These include amendments to the Banking Act, Collateral Registry, Credit Reference Bureau and the Zimbabwe Asset Management Company (Zamco),” Mangudya said in an interview with the Zimbabwe Independent.
“Funding for the clearance of arrears to the international financial institutions has been secured but the arrears shall be expunged in synchrony with the execution of the structural reform measures.”
Government, which has committed to the Lima Plan, is pulling out all the stops to rescue and revive the debt and arrears clearance programme as the debt-ridden country seeks to settle outstanding obligations in order to secure US$2 billion in fresh funding.
Mangudya last year 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 by a strong lobby against it. This came 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.
With elections coming up next year, government’s commitment to addressing these reforms could wane in the coming months. Zimbabwe will hold its general elections in 2018 where long-time leader President Robert Mugabe is expected to face strong opposition from a coalition of smaller political parties.
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 more than 90% of total revenue. Chinamasa’s bid to reduce the wage bill announced in his mid-term fiscal policy review statement last 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.