THE International Monetary Fund (IMF), in its most recent 125-page Article IV report published on March 26, had a brief line mentioning that Zimbabwe did not qualify for the Heavily Indebted Poor Countries (HIPC) debt relief.
The Brett Chulu Column
The irony is that as per my reading and interpretation of the detailed Debt Sustainability Assessment annexed to the same report, Zimbabwe seems to meet the thresholds of debt benchmarks for HIPC debt relief.
This revelation brings a poser to Zimbabwe’s long-standing huge debt overhang. This calls for an exercise to compare the HIPC benchmarks against Zimbabwe’s position.
The IMF and the World Bank use a framework split into two stages, namely the decision point and the completion point. In the first stage, a country must satisfy four criteria in order to be considered for HIPC. It is these four conditions we must examine to establish the possible reasons Zimbabwe is said to be ineligible for HIPC.
The decision point criterion is that the applicant country “be eligible to borrow from the World Bank’s International Development Agency (IDA), which provides interest-free loans and grants to the world’s poorest countries, and from the IMF’s Poverty Reduction and Growth Trust, which provides loans to low-income countries at subsidised rates”.
The IDA states that for a country to be eligible for its concessional loans, the following criteria must be met: to be eligible for funds, countries must first meet the following three criteria:
First, the “relative poverty defined as GNI (gross national income) per capita must be below an established threshold (updated annually). In fiscal year 2020, this was US$1 175” (parentheses are not mine).
Second, “lack of creditworthiness to borrow on market terms and therefore have a need for concessional resources to finance the country’s development programme”.
Third, the country must be “assessed to determine how well they implement policies that promote economic growth and poverty reduction”. This is done through a formal evaluation called the Country and Policy Institutional Assessment (CPIA).
Zimbabwe had a rating (IDA’s Country Performance Rating) of 2,68 in 2012 and 2,22 in 2013. Zimbabwe, according to available data, was in 2014 in the group “Inactive IDA countries in protracted non-accrual status”. On the list of countries eligible for IDA borrowing, Zimbabwe is listed as being eligible under what the IDA classifies as a blend country, meaning it meets one of two criteria, but fails in the other.
More specifically, an IDA-eligible country has a per capita GDP fitting it to a low-income country and is not creditworthy for normal market-based lending. A blend country is a low-income country, but that is creditworthy with respect to the International Bank of Reconstruction and Development (IBRD). This is where Zimbabwe is classified together with the likes of Nigeria. Zimbabwe has long cleared its arrears with the IMF.
On the basis of this evidence, Zimbabwe meets the first criterion of the HIPC decision point.The second criterion of the HIPC decision point is that the country must “face an unsustainable debt burden that cannot be addressed through traditional debt relief mechanisms”. The latest Debt Sustainability Analysis by the IMF on Zimbabwe reveals that Zimbabwe is in debt distress.
Zimbabwe’s baseline present value (PV) debt-to-revenue (government) was sitting at 411% for 2019. The baseline scenario for the same debt ratio is projected to turn out as follows: 547% for 2020, 580% for 2021, 572% for 2022, 566% for 2023 and 570% for 2024. The foregoing current and projected revenue-based debt ratio outturns are way above the HIPC threshold of 250%.
Turning now to the PV debt-to-exports ratio, yields the same conclusion that the public debt level is unsustainable. The threshold as per the exports basis is 150%. The ratio (baseline) for 2019 was 201%. The baseline projections for 2020-2024 are as follows: 196% for 2020, 200% for 2021 and 2022, 195% for 2023 and 189% for 2024.
On the basis of the two principal debt-ratio sustainability benchmarks, exports and government revenue, Zimbabwe far exceeds the thresholds, currently and into the projected future.
Next, we explore the third HIPC decision point criterion which states that the country should “have established a track record of reform and sound policies through IMF and World Bank-supported programmes”. The IMF Staff-Monitored Programme (SMP) is good enough to serve as a basis for evaluating the third criterion.
The Article IV report raised several concerns indicating that Zimbabwe had largely failed to meet the benchmarks set out in the SMP. The fourth and final criterion for the decision point is that the country should “have developed a Poverty Reduction Strategy Paper (PRSP) through a broad-based participatory process in the country”. Zimbabwe has not yet developed a Poverty Reduction Strategy Paper.
On the balance of evidence, Zimbabwe has met only two of the four decision point criteria, disqualifying it to be considered for HIPC.
So where is the irony? The irony is this: Zimbabwe’s economic degeneration has left it in a position where it meets the economic criterion for HIPC where it is possible for the country to get over 90% debt relief and access very affordable loans from the IDA with 30-38 years repayment period range and a grace period of five to 10 years — economic reform, which is a choice wholly under the control of government, is not being seized.
That irony must have an explanation. My take is based on two critical matters. First, the IDA classification of Zimbabwe as a blend country making it eligible for IDA assistance is largely academic because the Zimbabwe Democracy and Economic Recovery Act (amended in July 2018) lists the IDA as an international financial institution to which the United States will use its voting powers in IDA to block any attempt by the IDA to extend loans to Zimbabwe. If Zimbabwe qualifies for IDA assistance, why then is the country not seizing the opportunity even before it applies for HIPC?
Second, the fourth criterion of the decision point, the development of the Poverty Reduction Strategy Paper (PRSP) is not possible in Zimbabwe due to political polarisation. The civil society must also be involved in the PRSP process — it is difficult to see how the civil society will support the process as they will likely leverage on the opportunity to arm-twist authorities to make certain political concessions — the probability of the powers that be conceding is next to zilch due to the political zero-sum alpha male orientation.
The truth we cannot escape is this: short of deep-seated political and economic reforms and national reconciliation, the HIPC, as well as any other debt relief option is next to impossible.
Chulu is a management consultant and a classic grounded theory researcher who has published research in an academic peer-reviewed international journal. — email@example.com.