Govt should keep debt level in check

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IT was quite a dramatic coincidence this week that, just as Finance minister Mthuli Ncube was arriving in the United States, President Donald Trump was extending sanctions on Zimbabwe.

To understand what was happening, you had to pay close attention to both these developments, unrelated as they may have initially appeared.

Politicians and their advisers are free to say what they want, but the inescapable truth is that Zimbabwe needs the support of the international community. In that connection, the US plays a key role — in view of the significant voice it enjoys in international financial institutions (IFIs) and the global markets in general. It’s the biggest economy in the world and only super power after all.

As we report elsewhere in this issue, Ncube is struggling to accelerate the debt clearance roadmap which has been on the table since 2015. He hit a brick wall in Washington DC. Clearing arrears is important for the country to restore international funding, access fresh lines of credit, rebuild confidence in the market, as well as stabilise the financial services sector, particularly in view of currency volatility.

In Washington DC this week, Ncube has held discussions with the World Bank and the International Monetary Fund (IMF). The country cannot avoid engaging with the Bretton Woods institutions. Zimbabwe’s debt to the World Bank stands at US$1,3 billion — and if these obligations are not settled, it will remain virtually impossible to unlock fresh funding from IFIs. With the IMF, Ncube has discussed the staff-monitored programme. Although Zimbabwe cleared its US$107,9 million debt to the IMF in 2016, the IFI remains a crucial component of the debt clearance matrix. The European Investment Bank is owed US$308 million.

In recent weeks, the government’s international re-engagement drive has suffered significant setbacks. Senior officials have appeared to regress to default mode: contemptuously dismissing the misgivings of foreign governments over repression and what is a rapidly deteriorating human rights record.

Western governments are not making outlandish and unreasonable demands on Zimbabwe. They are simply saying the country should implement its own home-grown agenda of economic and political reform — and in line with constitutional stipulations. Why would anyone oppose this?
The World Bank and the IMF are not the only creditors the minister must negotiate with. The African Development Bank (AfDB), which is owed US$680 million by Zimbabwe, says it is waiting for the government to table a payment plan, after Harare missed its own pledge to avail a clearance schedule by November 2018.

It seems the government has taken longer than anticipated in drafting a comprehensive debt clearance plan because, among other factors, the authorities are determined to come up with an inclusive schedule that takes into account all the major creditors. If that is the case, we hope to see that plan sooner than later.

While all this is happening, it is vital for the government to ensure that debt levels are kept at a sustainable level in the long-term. It is unsustainable for a country to seek solutions to a debt crisis, while recklessly plunging into deeper debt at the same time.

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