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‘Debt restructuring scheme in disarray’

THE disruption of Zimbabwe’s Staff-Monitored Programme (SMP) under International Monetary Fund (IMF) supervision will make it extremely difficult for the country to conclude a foreign debt-restructuring programme, with prospects of receiving concessionary funding in the near term remaining very slim, Imara Asset Management Zimbabwe has said.


Highly indebted Zimbabwe, which owes close to US$10 billion to external creditors, has been struggling to come up with a debt repayment plan, resulting in the country being sidelined from a number of external financial programmes.

The IMF, which approved the SMP in May 2019, recently revealed that the programme is off the rails due to the government’s failure to meet critical requirements of the agreement with the Bretton Woods institution.

The SMP expired on March 30, 2020.

The IMF noted that performance against quantitative programme targets was satisfactory to the end of June, but the SMP went terribly off track afterwards, mainly because of widespread quasi-fiscal operations by the Reserve Bank of Zimbabwe (RBZ).

Imara CE John Legat now says Zimbabwe will not have another SMP until it shows willingness and ability to undertake much-needed economic reforms.

Debt restructuring was one of the key goals of Finance minister Mthuli Ncube when he took office in October 2018 but he has failed dismally on this aspect.

“As such, it will remain very hard for Zimbabwe to access lines of credit from international lenders on concessionary terms. The prospects of receiving concessionary funding in the near term are slim, implying that Zimbabwe will need to find ways of supporting itself until such time as it is ready to undertake the necessary economic and political reforms. In our view, a new SMP will not be back on the agenda until government shows its willingness and ability to undertake the much-needed economic reforms,” Legat said.

While government officials are at pains to blame Western sanctions for Zimbabwe’s failure to access international lines of credit, Legat said in reality it is simply due to the fact that the country has not serviced or restructured its foreign debt that it has owed now for more than two decades.

He added that adhering to the SMP and undertaking further political reforms, as promoted by the US government’s Zimbabwe Democracy and Economic Recovery Act, for example, was all Zimbabwe needed to to kick-start the re-negotiation process with the Paris Club of lenders and other international financial institutions.
“The government has now failed on both counts and, as such, no new concessionary money will be forthcoming, except humanitarian aid funds such as those from the World Food Programme and the Global Fund. Hence Zimbabwe will only be able to access funds on a commercial basis from the likes of the Afreximbank who undertake collateralised lending backed by our mineral exports,” he said

He added that it was uncertain as to how much the country can draw down on these types of facilities as such loans appear to be a state secret.

“We are also not sure how much of our exports have already been ‘mortgaged’ into the future to commercial lenders and whose foreign exchange can no longer be used to fund imports such as fuel and electricity,” he said.

The IMF’s Article IV report also highlighted concern that external commercial borrowing at market rates will further complicate the finding of a mutually agreeable resolution to Zimbabwe’s debt overhang with external creditors.

“A debt reconciliation with creditors, supported by transparency on the terms of all borrowings (including recent collateralised borrowing against future gold and platinum export receipts), is a necessary first step in advancing discussions. Given Zimbabwe’s large external arrears, and ineligibility for traditional debt relief mechanisms, there is a need to develop, and reach consensus on, affordable solutions to Zimbabwe’s debt overhang,” noted the IMF report.

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