The Sunday Mail
Hon Patrick Chinamasa
(Today) we are going to Lima, Peru to attend the World Bank and IMF Annual Meeting, with a strategy to clear our arrears so that we get fresh money. Our external debt stands at US$10,8 billion, US$6, 8 billion of which is public while the remainder is private sector debt. The private sector’s debt is performing, meaning they are meeting their commitment on schedule.
On the other hand, the public sector debt is not performing. What it means is we went into arrears and because of those arrears, we have complications in accessing the capital market.
We must divide this external debt into three portions:
(i) debt we owe multi-lateral institutions (the IMF, World Bank, African Development Bank and European Investment Bank);
(ii) debt to both public and private financiers managing their debt portfolios under the Paris Club; and
(iii) debt to bilateral creditors who include China and others. When we embarked on land reforms, the West reacted by imposing sanctions. This undermined our capacity to honour our commitments that we had been honouring since independence. That crippled Zimbabwe’s capacity to repay various loans, resulting in us accumulating arrears. In fact, the arrears come almost to the same level as the principal debt, meaning we have fallen far behind due to having accumulated those arrears.
In such a case, the financial or multi-lateral institution has to invoke a rule that provides for suspension of benefits to a particular member state. We are ineligible for World Bank soft loans for infrastructure development —roads, power-generation and railways, among others. We are also ineligible for balance or payment support from the IMF and in the ADB’s case, we cannot access infrastructure; private sector and SMEs support.
Essentially, we are not in a position to draw new investment money into the economy. The same applies to bilateral creditors under the Paris Club; we owe them money and cannot go back to them to borrow new money. That problem would not have arisen had we been servicing our debts. The difficulty Zimbabwe finds itself in contributes to its illiquidity. It’s because of this debt overhang that we have no access to the world’s capital market.
And what this economy needs is new money through loan capital, Foreign Direct Investment and lines of credits towards productive areas like agriculture, manufacturing and mining. Since 2013, we have been on a strategy that would lead us to accommodation with creditors. If that accommodation is achieved, the expectation is we can start talking about new funding for various sectors of our economy, which, currently, we are unable to. The market rule is that firstly, you must reach an accommodation with multi-lateral institutions (the World Bank, IMF and ADB) — the preferred creditors.
The IMF Staff Monitored Programme that we entered into and are implementing is to get us to the position where we have an accommodation with these three institutions. Primarily, (it is) to clear our arrears and, if we do, to start talking about opportunities for new funding. This is why we have been implementing the Staff Monitored Programme and I’m happy we have a successor programme. We have met our targets for the Staff Monitored Programme; performed beyond target. We will again examine/review in December this year.
We have crafted a debt resolution strategy to clear the arrears and working with the IMF, we are convening a meeting of creditors. This meeting is scheduled for Lima, Peru on the sidelines of the World Bank and IMF Annual Meeting. I now state our expectations. The strategy is to deal with arrears with three key creditors: the IMF, World Bank and ADB.
Our understanding is that if we clear the arrears with them, thereafter we begin to engage the Paris Club as well as bi-lateral creditors who are not members of the Paris Club. So, our expectations of this meeting are to get investors’ buy-in and support. Government dispatched Reserve Bank of Zimbabwe governor Dr John Mangudya to engage the Italian and German governments, the European Union in Brussels and the Paris Club in France. He briefed them on our strategy on clearing arrears with the three multi-lateral institutions. Back home, we have also been engaging all embassies accredited to Harare. This is also to ensure they communicate with their home countries and try to solicit support from their respective governments. The reason why Dr Mangudya went to these three countries is that we looked at our key creditors. In the meeting with Paris Club creditors, we also engaged the French government.
In fact, the Paris Club is being run by France’s finance ministry. Our expectations are that Lima will deliver a consensus and engagement on our strategy. At the moment, I am not at liberty to reveal the strategy as it would be improper for our creditors to only find out about it through Press. We need to break the strategy to them directly, so I can only disclose details after Lima. We are going to have a discussion and they can ask us questions so that we clarify any point which might need clarity. If that consensus emerges and the support is there, the sequence should be like this: The boards of these three institutions I have mentioned will take formal decisions to endorse our strategy, and if all of them do, that will lead to implementation of the strategy. The point here is that settling arrears to these three institutions has to be done simultaneously and not sequentially. Sequentially means one of them being preferred over the other. This is contrary to the rule on which these institutions run. The pari passu rule says there should be equal treatment for all the three multi-lateral institutions. If you are to pay any of them, it has to be in proportion to the money owed. On the wage bill, let me be clear. What we are attacking or seeking to correct is the percentage of revenue that goes to wages as opposed to operations and capital formation.
That percentage needs to be corrected. What we need to do is grow the economy. Where the economy has grown and the cake is larger, what we pay workers as a proportion of a bigger cake becomes a small percentage of this large cake. Wages can remain where they are, but when you grow the economy, it will be an insignificant amount. We are looking at how we have been running the show to check whether we can make any savings in terms of sound, efficient administration. We should be able to make savings. If we do, that will reduce the wage bill. Whether the economy is performing or not, we should always aim to have the correct percentage of wages to revenue. If you don’t, then that is unsustainable. We should be able to bring the percentage of wages to the proper level which is 40 percent. It is about rationalising our expenses by making savings. What should be done in the Civil Service is (infuse) efficiency and effectiveness — it is good for the economy. We have authorised audits to check whether the people are there.
You would not call it “dismissal” if we do an audit and find out that we have been paying someone for three years and yet that person was not there the whole time. Some audits covered payments to pensioners and the rule of any pension scheme is that pension payment ceases when the pensioner dies. In some respects, when the pensioner dies, his/her spouse will get a small amount until that spouse also dies. If no one reports the death of the pensioner/spouse/other beneficiary, it means we continue paying the pension money of a non-existent person. We need to flush out such occurrences. Pensioners are being asked to show themselves. In other words, it is a census of sorts. We are not going to sack anyone. In cases where we have duplication of roles, we are simply going to redeploy. Honourable Patrick Chinamasa is the Minister of Finance and Economic Development, and this article was taken from his interview with Sunday Mail Reporter Tinashe Farawo in Harare last week.
