By Phillimon Mhlanga
The International Monetary Fund (IMF) has warned Zimbabwe to start implementing its plan to resolve the country’s external debt arrears or risk losing momentum in its bid to re-engage international financiers.
The country last year tabled proposals to clear US$1,8 billion in arrears to the World Bank (WB), IMF and the African Development Bank (AfDB), to pave way for new funding.
The country has been unable to access offshore funding due to international arrears to the multilateral financial institutions and other lenders.
The arrears clearance plan, which was presented to international creditors during an IMF and WB annual meetings in October last year by the government in Lima, Peru, entails Zimbabwe clearing arrears to IMF amounting to $110 million, WB (US$1,15 billion) and AfDB ($601 million) by the end of April this year.
The strategy also involves development of a new comprehensive country financing programme supported by the AfDB, the IMF and the WB to attract long-term financing to promote growth and debt sustainability.
IMF resident representative, Christian Beddies, told the Financial Gazette’s Companies & Markets (C&M) last week: “Zimbabwe should keep the Lima process going. This is key for 2016 but to continue in that path, the country needs bold reforms.”
In terms of the Lima process, Zimbabwe had committed itself to restructure loan arrears from the three international financial institutions by April. The loan arrears, amounting to US$1,8 billion, should be cleared by then.
This would then be followed by engagement with other creditors, such as the European Investment Bank, Paris Club and non-Paris Club members by June.
The plan, apparently, is to reduce the country’s debt, estimated at US$10 billion, improve the standard of living in the country and spur economic growth.
Zimbabwe is grappling with a worsening liquidity crunch and an IMF report last year said the country’s external position remained precarious. It said the country was in debt distress.
It warned that key risks to the outlook stemmed largely from a further decline in global commodity prices, which have already hurt prospects of economic reforms, fiscal challenges, and possible difficulties in policy implementation.
Last year, the economy looked to be certainly on the verge of an implosion, with widespread company closures and job losses having been witnessed in the past two years.
Currently, government has failed to pay civil servants promised bonuses due to worsening fiscal pressures, with the last batch of December salaries having been paid in January.
Government revenue generation has been subdued, with its revenue collection agent, the Zimbabwe Revenue Authority missing its targets. The revenue authority has blamed the poor revenue performance on a “myriad of challenges”.
In its report, the IMF said a 15-month Staff-Monitored Programme (SMP) with Zimbabwe, approved in October 2014, constituted the lynchpin of the country’s roadmap for building a strong track record towards normalising relationships with its creditors and mobilising development partners’ support.
“Strong performance under the SMP would improve Zimbabwe’s repayment capacity and demonstrate that it can implement reforms that could justify a Fund-financial arrangement, which could help tackle the country’s deep-rooted problems. The Zimbabwean authorities remain committed to implementing sound macroeconomic and structural policies,” said the IMF.
“The authorities have stepped up their re-engagement with creditors, including by increasing payments to the WB and the African Development Bank.
“These re-engagement steps open the way for further constructive dialogue to identify feasible options for clearing the arrears to these institutions — a key step towards seeking rescheduling of bilateral official debt under the umbrella of the Paris Club,” the Bretton Woods institution said.
The debt clearance strategy is therefore expected to reinforce Zimbabwe’s commitment towards opening a fresh chapter with its lenders, as enunciated during the WB and IMF annual general meetings in Lima.
Beddies said an IMF team is expected in the country next month to review Zimbabwe’s third and final SMP. The team will be in the country from February 24 to March 11 to assess progress under SMP, which ended on December 31 last year.
The SMP is an informal agreement between country authorities and the fund staff to monitor the implementation of the authorities’ economic programme. The SMP, which was approved in October 2014, is a 15-month programme which envisages, among other things, to bring normalcy to relations between Zimbabwe and its creditors. Financial Gazette