Zimbabwe has adopted a three-pronged approach to clear its arrears to three preferred creditors — African Development Bank (AfDB), International Monetary Fund (IMF) and the World Bank — as it moves to unlock fresh capital.
BY NDAMU SANDU
Zimbabwe owes the three international financial institutions $1,8 billion. IMF is owed $110 million, the World Bank ($1,15 billion) and AfDB ($601 million).
Cumulatively, Zimbabwe’s public and publicly-guaranteed debt stood at $8,4 billion as at end of June 2015.
The approach, which was endorsed by creditors in Lima, Peru on Thursday, involves using a bridge loan to repay the AfDB and the World Bank’s International Development Association (IDA). IDA is a World Bank arm which helps the world’s poor by providing loans and grants for programmes that boost economic growth, reduce inequalities, and improve people’s living conditions.
AfDB said last month that it would give Zimbabwe a $601 million grant to clear the debt with the Abidjan-headquartered bank. The plan awaits approval from the AfDB board.
Zimbabwe will use a long-term loan from a bilateral lender to repay the World Bank’s International Bank for Reconstruction and Development (IBRD).
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IBRD provides a combination of financial resources, knowledge and technical services, and strategic advice to developing countries, including middle income and credit-worthy lower income countries.
Zimbabwe will use its Special Drawing Rights (SDR) allocation to pay IMF debt. In 2009, Zimbabwe received $510 million under the over $200 billion facility set up by IMF to help member countries shore up their reserves after the devastating 2008 global financial crisis. IMF also gave Zimbabwe SDR 66402 156 (about $93 million) which was escrowed pending the clearance of the arrears. The money is still to be drawn down six years on.
In an update on the debt strategy, Finance minister Patrick Chinamasa said the plan also entailed a development of a comprehensive country financing programme supported by AfDB, IMF and the World Bank that attracts long term financing and promotes growth and sustainability.
The external debt has hamstrung the country from accessing cheap and long-term financing to undertake projects in infrastructure development. Currently, the country relies on short term capital which is unsustainable for long-term infrastructure and development projects. The capital comes at a high cost.
Chinamasa said Zimbabwe will ride on the successful clearance of arrears to the preferred creditors to engage the European Investment Bank, the Paris Club and non-Paris Club bilateral creditors for debt resolution. Zimbabwe requires long-term financing to help reboot the economy but is hamstrung by the external debts which have locked the flow of international capital.
The Lima debt strategy plan was developed by a committee which was constituted in April to come up with a road map that would appeal to creditors. The committee was chaired by Reserve Bank of Zimbabwe (RBZ) governor John Mangudya. Its members were drawn from RBZ, ministry of Finance, IMF, World Bank and AfDB.
Mangudya then visited four European capitals — Berlin, Paris, Brussels and Rome — to drum up support for the arrears clearance strategy ahead of Thursday’s meeting.
Analysts say the new strategy has to be followed to its conclusion. In 2012, the country adopted the Zimbabwe Accelerated Arrears Clearance, Debt and Development Strategy that was supposed to use a combination of debt relief and resources pledging to clear the country’s debt. The plan was presented at a high-level meeting in Tunisia and the spring meetings of IMF/World Bank the same year. It was never implemented and disappeared from the scene following the death of its parent — the inclusive government — after the 2013 harmonised election.
