THE Zimbabwean government has committed to paying the US$1,2 billion arrears to the World Bank by April this year, as the first step towards unlocking fresh funding from multilateral institutions, but still faces a number of hurdles, including a credibility test, before accessing much-needed funds, the Zimbabwe Independent has learnt.
By Owen Gagare
The development comes at a time Harare is re-engaging British multinational bank Standard Chartered Plc and other institutions to help raise US$1,8 billion to clear arrears to international financial institutions (IFIs) for the country to secure US$2 billion in fresh funding.
Harare is seeking to clear the US$1,2 billion arrears to the World Bank and US$600 million owed to the African Development Bank (AfDB) to enable it to attract funding.
The clearance of arrears could also result in possible debt treatment by the Paris Club and non-Paris Club bilateral creditors through an IMF financing programme.
Zimbabwe presented an arrears clearance plan to its creditors in Lima, Peru, in 2015, which was anchored on several financial sector and structural reforms.
Officials close to the Lima Plan told the Independent that Zimbabwe will likely present its programme of action at the IMF and World Bank Spring Meetings in Washington DC from April 20-22. They maintained that a binding decision will not be made on Zimbabwe at the Spring Meetings, even if it clears its debts, because the United States of America and some influential European Union members are adamant that the country should pass the legitimacy test before accessing fresh capital.
Washington and European capitals are, among other considerations, insisting that President Emmerson Mnangagwa’s government — which rose to power on the back of military action widely seen as a coup — should earn its legitimacy by delivering a credible election, strengthening democracy and human rights as well as ushering in progressive economic reforms.
“An extended credit facility is therefore likely to be discussed at the IMF board meetings sometime in October. If funding is to come, it will be after a detailed economic programme with time-bound reforms. But it will be critical to get the Americans on board because they are very influential at the IMF and World Bank,” an official said.
The EU this week said it would “support the authorities in establishing as soon as possible a constructive re-engagement with international financial institutions based on a clear and time-bound economic and political reform programme.”
The bloc however said the support was tied to “peaceful, inclusive, credible and transparent” elections and reforms. America has also insisted on credible reforms and elections before normalising relations with Harare.
Officials say Western capitals, which hold sway at the IMF and World Bank, have been encouraged by Mnangagwa’s reformist talk but want to see tangible progress on the ground.
The IMF and World Bank board meetings, where Zimbabwe is likely to be discussed, will be held in Bali Nusa Dua, Indonesia, in October.
To clear its debts, Harare is engaging StanChart, overseas financial institutions and a global energy company for a syndicated loan.
Mnangagwa on Tuesday met officials from StanChart in Davos, Switzerland, before meeting Jose Laroca, the head of Traffigura on Wednesday.
The Independent in December 2016 reported that StanChart had unexpectedly agreed to shell out US$262 million to bail out president Robert Mugabe’s bankrupt regime.
Confidential documents seen then showed that StanChart had agreed to help raise US$1,8 billion to clear arrears to international financial institutions (IFIs) for Harare to secure US$2 billion in fresh funding.
The documents showed the British bank, which operates a network of over 1 200 branches and outlets across more than 70 countries around the world, including Zimbabwe, would pay US$262 million towards Harare’s debt to AfDB.
The African Export and Import Bank (Afreximbank) was supposed to pay the balance under a refinancing scheme to clear part of the over US$600 million owed to the AfDB. The Zimbabwe government was supposed to pay US$82 million on its own.
The deal fell through after the exposé sparked an international outcry, given that Zimbabwe was regarded as a rogue state.
Harare then secured a syndicated loan of US$1,1 billion which involved a global commodities firm, but again the deal fell through because of political infighting and lack of reforms in government.
At the time, Mnangagwa and his backers, including Chinamasa, supported the Lima Plan while the G40 faction, which had coalesced around former first lady Grace Mugabe, was opposed to the deal.
Following Mugabe’s ouster, the Mnangagwa government has been re-engaging IMF officials with a view to bringing the Lima Plan back on track.
“The government is saying the Lima Plan has the support of all members of cabinet unlike in the past. The government is setting stiff targets even where modest targets could have been better,” the official said.
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. 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 is also critical for Zimbabwe’s re-engagement process.
Zimbabwe paid its US$108 million IMF debt on October 2016 using Special Drawing Rights holdings with the fund.
The payment of IMF arrears enabled the fund’s executive board to lift the declaration of non-cooperation, fully reinstate the provision of technical assistance and restore Zimbabwe’s eligibility to the Poverty Reduction and Growth Trust (PRGT) — all punitive measures imposed on Harare due to the accumulation and non-payment of arrears.