THE Reserve Bank of Zimbabwe (RBZ) has taken a position to delay the settlement of its debts to three international financial institutions (IFIs) until it meets conditions that will enable Harare to access cheap concessional funding.
By Melody Chikono
RBZ deputy governor Jesimen Chipika told delegates attending the 46th Institute of Bankers Zimbabwe (IoBZ) summer school in Nyanga on Tuesday that the country will achieve nothing by rushing to pay off debts when it has not met the debt engagement conditions.
Some of the conditions include ease of doing business reforms, improvement of investment climate, fiscal and current account deficit containment and reorganisation of state-owned enterprises.
The central bank recently announced that the debt-ridden country had secured funding to settle World Bank arrears, but that was too early an announcement to celebrate.
Despite announcing that the country had secured funding to clear the US$1,4 billion arrears to the World Bank and US$600 million owed to the African Development Bank (AfDB), the apex bank said more has to be done to ensure that the country meets the pre-requisites of settling the arrears.
Before successfully clearing its arrears to the International Monetary Fund (IMF) recently, Zimbabwe owed three international financial institutions — World Bank, IMF and AfDB — who enjoy preferred creditor status, US$1,8 billion.
“We have already secured a facility that can clear the debt, but the only reason we are not clearing now is that there are some components of the debts engagements obligations that we are still to fulfill,” Chipika said.
“If we pay now, as central bank we would only manage to pile up our debts. So what the governor is working on is that once we get at the prescribed level, we then take the package we have managed to secure and pay off the debt. Hopefully we will manage to meet the standards and be up to date.”
Hope turned to despair for government when it missed its initial timelines with international financial institutions.
Outwardly, government put on a calm face, boldly declaring that all was in order. That was not the case. In July, the IMF team, which had concluded Article IV consultations on Zimbabwe, unequivocally said more work should be done.
“The re-engagement process is facing severe headwinds,” the IMF said in a report on Zimbabwe.
“However, the expected bilateral loan to clear arrears to the World Bank Group did not materialise, and led the authorities to seek an alternative package from commercial lenders. The IMF added that inadequate progress on reforms is undermining the prospects for new financing.”
Under the Lima plan, Zimbabwe committed to planned simultaneous repayment modalities to the IMF, World Bank and the African Development Bank.
The 2015 Lima process, which received support from creditors and development partners, envisaged clearing arrears to the IMF using the SDR holdings, to the International Bank for Reconstruction and Development with a bridge loan from a bilateral creditor, to International Development Association drawing on a turnaround facility, and to the AfDB with the AfDB Pillar II Trust Fund set up for countries’ arrears clearance.
Meanwhile, the RBZ also revealed that the Africa Export and Import Bank (Afreximbank) averted a total economic collapse when it inked a US$600 million deal with the Reserve Bank of Zimbabwe (RBZ) last month at a time there was panic buying and hoarding of commodities.
The move prevented fuel shortages and panic buying from spiralling into a major crisis.
Zimbabwe risked lurching into out-and-out meltdown following rising inflation, shortages of fuel and basic commodities in supermarkets, as bond notes lost more than 50% of their value on the informal market.
Chipika said the regional bank had moved in to deal with the crisis by providing a US$600 million nostro stabilisation facility to mitigate import bottlenecks.
“They were in the country when it happened. You can hide all other difficulties, (but) not fuel shortage. It actually triggered them to sign the US$600 million facility and that is how we quickly stabilised the situation,” Chipika said.
She said the issuance of Treasury Bills to fund government projects would not stoke inflation despite concerns by some experts.
“We are aware that we are creating money, but the advice we would take from you bankers is that we should not print beyond the level that will cause inflation. But as it is now we are still at a reasonable level that will not start to reflect inflation. We also assure you that we will not be printing to inflationary levels,” Chipika said.