Govt sets up committee to resolve debt crisis
A CENTRAL bank executive has indicated that government has accelerated efforts to re-engage multilateral institutions to resolve the country’s external debt arrears, which have proscribed it from accessing offshore support to extricate the economy from crisis.
This reaffirms a statement by the International Monetary Fund (IMF) in April suggesting that Zimbabwe had “stepped up” its re-engagement with international creditors due to difficult economic prospects and weakening growth.
Debt arrears, estimated at over 60 percent of the gross domestic product, have affected the country’s credit rating, making it a pariah in international capital markets.
Zimbabwe’s external debt amounts to US$6,703 billion while domestic debt was at US$1,7 billion by end of June.
Total arrears amount to US$5,528 billion, of which US$2,571 billion is owed to multilateral institutions.
Reserve Bank of Zimbabwe (RBZ) deputy governor, Kupukile Mlambo, told the Financial Gazette’s Companies & Markets (C&M) at the Institute of Chartered Accountants of Zimbabwe Winter School in Dubai last week that government was pushing hard to have a deal with the International Monetary Fund (IMF), the World Bank and the African Development Bank (AfDB) to resolve the debt crisis.
Mlambo said a quadripartite committee, chaired by RBZ governor, John Mangudya, had been put in place to come up with proposals on clearance of arrears with the three multilateral institutions.
Permanent secretary in the Ministry of Finance and Economic Development, Willard Manungo, Mlambo, country representatives of World Bank, IMF and AfDB are the other members of the quadripartite committee. The committee will present its recommendations for discussions in October this year in Lima, Peru during the annual meetings of the IMF/World Bank.
“By October this year, we want to go to Lima with our proposals on how to clear the arrears so that our debt becomes current,” Mlambo told C&M.
“This is an important step as the country will be able to borrow again. Currently, we owe the WB about US$1,2 billion, and the balance is shared between ADB and IMF,” he said.
The IMF has indicated that Zimbabwe should clear its debt arrears if it were to receive international financial support to repair its damaged economy, which economists warned was now likely to contract after Finance Minister Patrick Chinamasa revised growth forecasts in his mid-term fiscal policy review two weeks ago.
In April, the IMF, from which international investors and financiers take a cue, warned that the economy was on the verge of an implosion following widespread company closures and job losses after the Bretton Woods institution completed the first review by its management of a Staff-Monitored Programme (SMP) with Zimbabwe.
The IMF statement added: “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.”
“The authorities have stepped up their re-engagement with creditors, including by increasing payments to the World Bank 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 Paris Club is an informal grouping of creditor governments from major industrialised countries. Most of them are influential members of the IMF board.
Last week, economists warned the economic crisis was worsening after Chinamasa admitted that “constrained fiscal space” had threatened government’s social and infrastructural development objectives outlined in its economic blueprint, the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim-Asset).
Zim-Asset, adopted soon after ZANU-PF’s landslide victory at polls in 2013, was meant to mobilise up to US$27 billion to help government repair the failing economy currently in deflation.
“Current indications from almost every business sector suggest that shrinkages in activity have dominated most of the trends this year,” said economist, John Robertson.
Another economist, Godfrey Kanyenze, said desperate measures to boost coffers through duty increases to thwart imports were likely to fail, blaming government spending skewed in favour of recurrent expenditure for undermining fiscal space and consequently militating against the country’s capacity to service its debts.
“Sadly, government has persistently failed to deal with the structural issues such as restructuring of public enterprises, and undertaking a socially-sensitive restructuring of the public sector.”