HomeLocal NewsAfDB giving government grants not loans: Kitabire

AfDB giving government grants not loans: Kitabire

THE African Development Bank (AfDB) is co-ordinating negotiations between Zimbabwe and various international financial institutions (IFIs) for Harare to settle its US$12 billion foreign debt. Though AfDB has suspended lending directly to government, the continental financier will extend US$50 million to the private sector this year, while it will also avail US$223 million to the southern African country in grants over three years. The Zimbabwe Independent business reporter Tinashe Kairiza (TK) spoke to the AfDB country manager Damoni Kitabire (DK) on how Harare is planning to settle its external arreas. Below are the interview excerpts.

TK: AfDB president Akinwumi Adesina said in Johannesburg last week that the continental bank is leading talks between Zimbabwe and IFIs for Harare to come up with a sustainable external debt settlement plan. What specific role is AfDB playing?

DK: We are part of the collaborative group that is talking to government in finding a solution for Zimbabwe to settle its arreas.When I talk about a collaborative group, I mean all the other IFIs which are part of the group talking to government. So our role here is working together with our colleagues, who include the World Bank (WB) and the International Monetary Fund (IMF) and several other creditors that are involved. It is very important that there is collaboration. Our role is that, as Zimbabwe moves forward, we are moving in a collaborative and co-ordinated way. We are making sure that we are all moving together. In our discussions with government, we are saying, first, let us investigate the available options for Zimbabwe to settle this debt. There may be several options, but we are saying, put all the options on the table and investigate them. That is what we are all saying, and having put all the options on the table, let us not rush. Let us find an option that is best for Zimbabwe. You want at the end of the day, when this whole exercise is done, to look back and say this is what is best for Zimbabwe. Of course, there is pressure to say let us quickly get it off the way, let us get it done, but we are saying at the end of the day we have to come up with the best solution for Zimbabwe. When all is done, you want to look back and say Zimbabwe is better off now than what it was before. In other words, we are looking at the debt sustainability after all is said and done. This means leaving the debt sustainable, while Zimbabwe becomes creditworthy. You do not want to take up a solution that leaves the country worse off. That is the gist of our discussions within the collaborative group.

TK: You spoke about a number of options that you said the collaborative group is assessing. What are some of the possible solutions that you are discussing?

DK: Let me be very clear. It is not us putting options on the table. We are working together. The government of Zimbabwe has its options; we are just advising, looking at what other countries have done to solve their debt problems. We are looking at everything, from the Highly-Indebted and Poor Country (HIPC) status, to debt cancellation. We are looking at various historical examples of how countries have managed to solve the debt problem. Mynmar is the most recent example in history of a country that has solved its debt problem. We are looking at that. It is putting all those options on the table and trying to see which is the best option for Zimbabwe.

TK: Is there research work that is being conducted for Zimbabwe to come up with a debt settlement plan?

DK: If you speak to the Zimbabwe Economic and Policy Analysis Research Unit (Zeparu), they are currently doing some research to explore for government what are the best available options. I think there are about six options, and I think HIPC is one of them, debt cancellation another option, going commercial and borrowing being the other possible solution. They have promised that by end of this month they will come up with a report which will help government to explore academically what will be the best option to leave Zimbabwe better off.

TK: The previous government of former president Robert Mugabe was at some point advised to take the HIPC path, but it flatly rejected this option, saying Zimbabwe was not that poor to be labelled with that tag. Now there is a new government, is HIPC one of the possible options?

DK: That kind of question has to be addressed by government, but from our discussions with them, they are open to look at all the available options. Government is open in these discussions. It wants to look at all the available options that leave Zimbabwe better off in terms of debt sustainability and in terms of creditworthiness. Do not say government has accepted the HIPC status; they are just saying let us examine the option.

TK: The previous government tried to settle the debt problem through the Lima Plan, but at some point ditched the idea. Is there appetite and political will by the new government to revisit the Lima option?

DK: If I understand it well, Lima was more than a debt settlement plan. It was a matrix of reform actions that would be implemented to revive the economy. From our discussions with government, there is a lot of appetite to reform and make sure that the economy is operating maximally. So to answer directly, yes, from our discussions and interactions with government, there is intent to revive the economy and make sure that the country is on an even path. We are looking at the financial services sector; we are looking at financial consolidation. All these things are important to make sure that the economy starts to operate in a manner that is optimal. There is appetite to reform on the part of government.

TK: Let us talk about timelines — are there any deadlines as to when Zimbabwe should have settled its arrears within those discussions?

DK: Yes, a lot of this depends on what option Zimbabwe is going to choose. Firstly, we need to go through the options and agree that this is the option we want to take. We do not want to put ourselves under pressure. It is true we want this problem quickly solved, but we do not want to put ourselves under pressure. We should not lose sight of the point that at the end of the day we want to come up with a solution that leaves Zimbabwe better off, no matter how long it will take. Initially, we had thought that we would be able to do it by September or October of this year, but I think that is probably a bit too ambitious. Let us take a deep breath and say what is the best option for Zimbabwe, and that is the path we are currently taking.

TK: Are there separate discussions between Zimbabwe and AfDB for Zimbabwe to settle its US$600 million arrears to the bank?

DK: Let us get this right again; it is true Zimbabwe is in arrears to the AfDB. Since Zimbabwe is in arrears, there are certain things we cannot do. For example, we are not giving loans but we are giving grants. Right now we have an ongoing portfolio of about US$223 million in grants that we are implementing in Zimbabwe in various sectors. We have activities in energy; we have activities in water development in Bulawayo. We have activities supporting governance. The studies that Zeparu is undertaking, we are actually financing that. We are not lending because Zimbabwe is still in arrears. We have suspended loans, but we are giving out grants.

TK: Another solution that has come under discussion is for Zimbabwe to mortgage part of its vast mineral wealth to offset the debt, do you think this is a practical plan?

DK: In a discussion like that, you want to look at the merits and demerits of such an option. First of all, you are talking about minerals which are down there, so if you are mortgaging them, you first have to establish how much they are worth and how long it will take to explore them. What could be the alternative to using these minerals?

Zeparu is doing that study and that could be one of the options they are looking at. But we have to say, is there a country elsewhere that has mortgaged its minerals to pay debt? Zimbabwe is not the first country to be in debt.

There is Argentina. If these minerals are down there and you want to use them to pay debt, what are the future generations going to use for their own development? Look at the situations of the roads. I would not want to use those minerals to settle debt, but, like I said before, if it is the only option available, we will take it. We should look for a solution that leaves Zimbabwe better off, not just for today, but for future generations.

TK: Speaking in Johannesburg, AfDB president Adesina also said beyond relying on grants and donations, Africa should focus more on attracting investment. Do you think this applies to Zimbabwe?

DK: This is what President Emmerson Mnangagwa has also been saying. He is on record saying the country should now focus on attracting foreign direct investment (FDI). The distinction between aid and investment is that investment has returns such as jobs. Aid, on the other hand, does not do this. What everyone is telling Zimbabwe is that look inwards, consider domestic savings. The second option is for Zimbabwe to boost trade to generate money.

TK: Under the Lima Plan, this is a matrix of reforms as you said, rather than just a debt settlement plan. Is there political will on the part of government to implement those reforms?

DK: President Emmerson Mnangagwa has been very consistent on the need to reform. He has sung that song consistently. We now need to give him a little bit of time to see what is going on on the ground. But from the speeches we have heard, the political will is there. But let us be more realistic. There are elections around the corner. Elections are a distraction for any country anywhere in the world. He is saying we are reforming, we are open for business, consistently. However, at the same time he also has to sort out the elections first. Maybe after we are done with the elections, whoever would have won, we will be able to say this is what they have done and now we can move forward. To give it to government, they have done some legislation that shows they are committed to reforms. For example, they have done some reforms on the indigenisation legislation. This translates into action.

TK: Initially you said Zimbabwe wanted to settle arrears by September this year, how did this timeline come about? Which option had Zimbabwe taken to settle its debt problem?

DK: This was a new government; they wanted to do certain things arising from the old government. The September deadline had been agreed to with the old government. In our recent discussions, as we examined the various options, we said we are aiming for September or October, have we examined every possible option that leaves Zimbabwe better off after this deal is struck. That is why we put some breaks and said let us put the options on the table.

TK: Let us talk about the cocktail of reforms creditors have put on the table to say this is what Zimbabwe needs to do before they resume lending again. What are some of those reforms?

DK: I do not want to appear as though this is a conditionality. Let us avoid that word. We are not saying to Zimbabwe you must first do this before we do this. We moved beyond that. We are partners in this. No-one is saying first do this before we do this. Right now there is no suspension of financing, we are giving grants. Once the arrears are done we will resume the loans. Now there are a whole lot of things that need to be done. Things we want to see include macro-economic stability, the financial system—fiscal consolidation. We need to have a stable and enabling macro-economic environment. Every country needs that. The financial system has to work, there should be money in the machines, and interest rates are where they should be. Right now we are spending quite a lot on wages.

We need to look at our public expenditure. There are a whole lot of reforms which need to be done. Look at infrastructure. Let us talk about agriculture. This country used to be the bread basket of the continent. We should not be talking about food deficits. We need to be talking about getting agriculture work again.

TK: How much are you going to lend to the private sector this year?

DK: We are not giving loans to the public sector; we are giving loans to the private sector. We are now trying to see where else we can intervene. We are now scanning the (investment) environment and we are looking at doing another US$25 million to US$50 million before the year ends, depending on whether we can find a viable project. The maximum we can commit this year is US$50 million. When we look and appraise the operations of the private sector, we are a little bit more vigorous. We are now making sure that we cover ourselves when we are dealing with the private sector.

TK: What agenda should debt distressed countries like Zimbabwe take to the Africa Investment Forum set to be held in South Africa later this year?

DK: Debt distressed countries to begin with, before you borrow-make sure that you are borrowing for the right project. A project that has been studied, a project that has been appraised. Let us look at the purpose of borrowing. Why are we are borrowing? Will the borrowing create jobs in the economy? How is the borrowing going to help the economy? Let us also look at the terms of borrowing. That is also important.

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