DEBT-RIDDEN Zimbabwe is clocking up US$1 million in accrued interest on a monthly basis, as it struggles to service its US$700 million debt to the African Development Bank (AfDB), the Zimbabwe Independent can reveal.
The country, hamstrung by an US$8 billion external debt stock and hampered from accessing fresh lines of credit on the international market, is struggling to settle its debts to various multilateral lenders.
The debt is expected to swell this year, with government in sixes and sevens, as a solution to extinguish the huge debt remains elusive.
AfDB country manager Damoni Kitabire told the Independent that in the short term there are no indications that Zimbabwe will come up with a debt settlement plan.
“The debt is growing by US$1 million every month. There is no document that says they are going to pay by this time,” he said.Currently battling an intractable economic crisis characterised by rising inflation and rolling power cuts which have disrupted industrial operations, Zimbabwe fell into arrears in 2000. It was subsequently barred from accessing fresh lines of credit from AfDB.
Despite committing to the payment of arrears in the Lima debt and arrears clearance plan of 2015, Zimbabwe is yet to pay its dues.Kitabire said: “The bank and other developmental partners have been in discussion with the government to have the arrears settled in the shortest possible time.
“Since then, the Transitional Stabilisation Programme (TSP) had opined that the arrears would be cleared by 2020. However, no new concrete dates have been formalised for the arrears clearance.”
Zimbabwe’s failure to clear its debts has made it near-impossible for the country to access fresh loans from international financial institutions, at a time the country is in desperate need of capital injection.
With other multilateral institutions, like the World Bank, the Paris Club and non-Paris Club, still owed billions, there is little room to manoeuvre for the broke government, which is also saddled with a domestic debt standing at US$9 billion.
AfDB has been leading talks between Zimbabwe and multilateral institutions for Harare to come up with a sustainable external debt settlement plan. Lending institutions have demanded broad-based economic reforms if they are to resume financial relations with Harare.
Kitabire said AfDB shareholders were also pushing for sweeping economic reforms and payment of arrears if the bank is to resume lending.
“We are looking for economic reforms, that is what our shareholders are asking for. With economic reforms, you can see it. There is predictability,” Kitabire said.
“Our shareholders are interested in political reforms before Zimbabwe can access funds. There are also electoral reforms.”
As part of a cocktail of measures to save the sinking ship, the mortgaging of minerals to pay arrears was proposed by strategic partners. However, AfDB urged the government to consider the lowest and least disruptive option to arrears clearance.
Zimbabwe, Kitabire said, should protect generational wealth by ascertaining the value of its natural resources before mortgaging minerals to offset its huge debt stock.
“In our previous discussions with government, we have always suggested that the lowest cost and least disruptive option for arrears clearance should be considered.
“The option should also consider inter-generational wealth sharing, so that the future generations are not disadvantaged. Should mortgaging the minerals be that option, then we would be supportive. However, we leave the assessment to the government,” Kitabire said.
President Emmerson Mnangagwa this week met AfDB president Akinwumi Adesina in Mozambique and said Zimbabwe was in discussions with the bank for continued cooperation and possible lines of credit.
Mnangagwa said it was “unjustifiable” for other multilateral institutions to withhold lines of credit. Other options on the table include enlisting Zimbabwe under the Heavily Indebted Poor Countries (HIPC) initiative.
While the late former president Robert Mugabe turned down the HIPC idea, it is largely viewed as an easy way out of the current debt overhang. However, HIPC requires applicants to embrace stringent reforms before international funders can write off the debt and resume offering loans.
Government debt has burgeoned in the past decade owing to the state’s unbridled expenditure as it relied on the domestic financial markets to meet its budget financing needs. This resulted in the rise of the public domestic debt. In his 2020 National Budget, Finance minister Mthuli Ncube said government resumed token payments to international financial institutions in April 2019, which will be continued this year.
As part of the roadmap to arrears clearance, the government signed a Staff-Monitored Programme (SMP) with the International Monetary Fund (IMF) covering the period May 15, 2019 to March 15, 2020 with quarterly performance reviews. The SMP seeks to assist the country to implement key reforms as outlined in the TSP and build a track record of implementing sound economic policies, as it seeks to normalise relations with the international community. But the SMP is in limbo amid efforts to recalibrate the agreement after government failed to adhere to the letter and spirit of the initial deal.
Due to the slow pace of reforms, Zimbabwe could lose out on a US$500 million AfDB facility for arrears clearance.The facility, offered to two other countries, namely Somalia and Sudan, is on a first-come first-served basis. While Zimbabwe is unable to acquire fresh loans from multilateral funders, the country has been able to access US$237 million in grants. Several factors have militated against Zimbabwe’s debt repayment in the past two decades, including economic mismanagement, drought, hyperinflation and failure to tame unbridled expenditure.
Zimbabwe will, however, endure a long, arduous journey to recovery with the latest Needs Assessment by the World Bank, AfDB and the United Nations projecting it will take 20 years to achieve full recovery.