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Seeking to change deadbeat image, Zimbabwe pays debt

After 20 years of not paying its debts, Zimbabwe is taking steps to clean up its balance sheet and its image by making payments to major creditors.

A man wearing a hat decorated with worthless note bearers' cheques during a protest against government plans to introduce bond notes -- a local token currency equivalent to the US dollar, and unemployment on August 3, 2016 in Harare. (ZINYANGE AUNTONY/AFP/Getty Images)
A man wearing a hat decorated with worthless note bearers’ cheques during a protest against government plans to introduce bond notes — a local token currency equivalent to the US dollar, and unemployment on August 3, 2016 in Harare. (ZINYANGE AUNTONY/AFP/Getty Images)

Even if admittedly token amounts, the government hopes they will build goodwill towards Zimbabwe.

Finance Minister Mthuli Ncube announced during a video conference this month that Zimbabwe had made its first payments in two decades to a group of rich countries known as the Paris Club.

“We have started paying them because, as a country, we ought to be known as good debtors and not bad debtors,” Ncube said.

In addition to the first payments in two decades to the 17 nations that are part of the Paris Club, he said Zimbabwe was also settling its debts to multilateral lenders.

“We have taken the step of beginning to pay token payments to the World Bank, the African Development Bank and the European Investment Bank,” Ncube said.

Clearing Zimbabwe’s debts, or simply catching up on payments, is a mammoth task.

The $11 billion that Zimbabwe owes to foreign lenders amounts to about 71 percent of the country’s GDP. Some $6.5 billion of the total is payments that are in arrears.

Ncube said the government would need a “sponsor” to bring its debt payments under control.

It was unclear what exactly he meant by that, but he said the goal was “really to tackle those arrears with the World Bank and the African Development Bank, the preferred creditors.”

“We are working hard on that,” he said.

Zimbabwe defaulted on its debts when the economy fell into a tailspin 20 years ago under then-president Robert Mugabe.

President Emmerson Mnangagwa, who took power after a coup in 2017, wants to renew ties with Europe and the United States, which had largely cut them over Mugabe’s undermining of elections and human rights abuses.

– ‘Essentially a gesture’ –

“The country seeks to re-engage with the international community in Europe and the US,” economist Persistence Gwanyanya told AFP. The debt payments “are positive actions that will convince the rest of the world that we mean what we say.”

The West may take a lot of convincing.

Mnangagwa, once a top deputy to Mugabe, is among the senior government officials banned from travelling or banking in the United States and Europe.

Western countries froze his assets in protest of human rights violations, and so far have shown little inclination to ease them.

In July, Britain added new sanctions to a Zimbabwean official for fraudulently redeeming treasury bills at 10 times their official value.

But Gwanyanya said making even small payments on its debts shows the world that Mnangagwa wants to do business differently from his predecessor.

“That Zimbabwe has started to do so at a time where our debt is very in excess would unlock some capital from the external world,” he said.

Zimbabwe’s economy has swung dramatically since 2000, shrinking at a breathtaking rate during years of hyperinflation, before clawing its way back to growth in 2009.

Covid-19 and a drought pushed the economy back into recession, with inflation returning to triple digits.

Inflation has settled back down into double digits — sitting at 56 percent in July, down from 106 the previous month — and Ncube has ambitious plans to bring the country into the global middle class by 2030.

To do that, Zimbabwe will need capital and investors. Paying down its debts is one way to make the country more attractive.

“Essentially it’s a gesture,” Gwanyanya said. “It does not mean we are able to pay the complete debt but it will send a signal to the rest of the world about our willingness to service debts and therefore change perceptions of how others view the country.” AFP

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