‘We are mortgaging our children!’

In early October 2015, Finance and Economic Development Minister Patrick Chinamasa and Reserve Bank of Zimbabwe Governor Dr John Mangudya were in Lima, Peru for the IMF and World Bank annual meetings. Our Reporter Tinashe Farawo spoke to Dr Mangudya on Zimbabwe’s external debt clearance strategy. We publish the Central Bank chief in his own words.
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Zimbabwean economist John Mangudya who was appointed central bank governor poses in his office on March 24, 2014 in Harare. Zimbabwe's President Robert Mugabe has appointed economist John Mangudya as governor of the country's central bank, state media reported Sunday. Mangudya succeeds Gideon Gono, whose term expired in December after a 10-year tenure marred by world-record hyperinflation that eventually forced the country to abandon its currency. AFP PHOTO/ JEKESAI NIJIKIZANA
Zimbabwean economist John Mangudya who was appointed central bank governor poses in his office on March 24, 2014 in Harare.  AFP PHOTO/ JEKESAI NIJIKIZANA

What this economy needs is discipline. There should be reasonable mark-ups on our products so that we move volumes and grow our economy.
We are positive that we will get cheaper loans from (multi-lateral institutions) as they accepted our plans to clear arrears.
What Lima has done is put Zimbabwe on a firm footing for economic growth. The agreement has put the country in good standing.
In fact, I have already instructed banks not to lend money to people who don’t want to pay. We must learn to pay our debts.
That’s why Government came up with the Zimbabwe Asset Management Company, to ensure non-performing loans begin to perform by spreading debt with lower interests.
The most important thing is that we owe creditors.
Barring all the reasons why we were not paying, we owe people money and the fact of the matter is if we don’t pay, we continue to increase the country risk.
We need to know that if we go out looking for money, we get that money at high interest rates as we have not been paying.
The more we don’t pay, the more we increase the country risk.
If you owe someone, there are two choices.
The first is to repay or if you are not paying the full amount of money, you need to restructure that debt.
So, we are saying, “As Zimbabwe, we have been utilising money without repaying both interest and capital and the only way out is to repay.”
We are even mortgaging our children!
We are paying so that we put a stop to arrears – to, at the end of the day unlock new funding.
Fresh money is required because we have a deficit. Therefore, we need to state the context in which the country is.
We are going through difficult times because we don’t have much money or capital accumulation.
Where do we get the money from? We get money from international institutions! These institutions give us long-term (loans).
In terms of concessionary funds, the World Bank, IMF and African Development Bank have cheaper money.
As we speak, any bank will give you money at 20 percent interest and so on. The money will be expensive.
So, we want the money for investment. When there is investment, people are empowered, employed and there is productivity.
What we are simply doing is unlock new money and what we are saying is, “Repay.”
The money to repay, as we have previously stated, will come from our Special Drawing Rights, which will go towards that US$110 million debt.
On the AfDB, we are going to look for bridging finance. The board will now meet to decide on giving Zimbabwe a grant under their transition facility.
The process is as follows: We first pay and then they will approach their board for approval. If the green light is given, they will then give us a grant to reimburse what we would have paid.
After payment, the board will decide how much they can give us.
What is good for the country is to ensure we don’t owe them money, and from there we will now look for new money. These are the things our strategy looks at, but with bridging finance, it can take a week or two to a month.
The idea is to minimise the time to, in turn, minimise the cost implication to the country.
What we need to do with the AfDB is to first clear the outstanding US$601 million before we access new money.
That is the trick behind this strategy: minimising the period between payments.
After repayment, we will be able to attract fresh money as we will be in good standing with those institutions.
In the case of the World Bank, we have to pay.
As we have said in our statement, we are going to find money from friendly countries to settle our debts.
The reason why we have been re-engaging is that we will get money bilaterally and such countries are members of these institutions.
In short, the stakeholders of these institutions are decision-makers.
The IMF’s 180 members are the governors; the people who decide. That’s why Minister Chinamasa is the governor and I am the alternating governor.
Member countries are shareholders and that’s why we have been going there to re-engage on how we are going to clear what we owe.
These are the major creditors.
What we are simply saying is, “Shareholders – China, Germany, France and others – we owe you money.”
So, we also owe them money in their own right. Therefore, let’s deal with their companies, their institutions first. I am positive that this way we will get new money.
Those three institutions are called preferred creditors; that’s why we are paying them first and we pay them as if they were one. You can’t choose.
These people are one.
Go to the IMF, the AfDB and you will see the same faces.
Zamco
Let me talk about Government policy about Zamco. Its main role is to stabilise non-performing loans.
Zamco is inheriting secured non-perfoming loans, and simply restructuring the books of entities that can be resuscitated so that we resuscitate the economy going forward.
You note, for example, some companies are owed money and banks are charging high interest rates of, say, 25 or 35 percent on short-term. We are saying debt can be spread not just over three months or one year. Some banks have lots of money in their books and this money is not performing. We are trying to restructure the loan payment plan, removing the obstacle to non-performing loans.
This is critical after dollarisation as interests rates and cost of money were high and our pricing system was not on.
So, this programme will break this vicious circle.
By the way, we don’t print the money we are using; therefore, we need to earn it through production, exports and FDI.
Zamco is supposed to be a catalyst for non-perfoming loans.
It is also supposed to remove the burden and risk of closure by these companies as a result of non-performing loans.
You are aware that the non-performing loan in this country is US$750 million and not everyone will qualify, but we are going to review this on a case-by-case basis.
We are looking at inheriting about three-quarters of that amount.
Zamco management will assess such issues to see which loan can be secured and who can benefit. This programme is geared towards economic growth.
We all agree that the economy is stable, but we want to go beyond stability.
I don’t know why people are against this programme.
Almost every country has it – Nigeria, those in Europe and others. Look at what happened in the United States after the global financial crisis.
Governments have to come in to assist the economy in times of crisis.
This brings stability and growth, and it is good for economic development.
These are not quasi-fiscal activities because we are purchasing the equipment and spreading the debt so that companies will be able to settle their debts. It does not help to hold on to an asset and yet the loan is not performing.
So, we are assisting the loans to perform.
I reiterate: We are spreading the loan. In fact, we are giving it long life so that companies pay and in between, we are ensuring the companies perform.
We have Rio-Zim, for example, which will benefit from this programme. This is a good company.
They are producing gold and we want to spread their debt to enable them to repay the loan.
The problem, as I indicated earlier, was interests were high and the loan was short term. We are also looking at Cottco, among others, but again, that’s what Zamco management will be doing. Many companies are going to benefit from this programme.

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