The Sunday Mail
Business Reporter
The decision to rope in African Development Bank (AfDB) President Dr Akinwumi Adesina, who was in the country last week to officially accept responsibility to champion Zimbabwe’s debt resolution strategy, could help the country’s re-engagement drive gain traction.
Dr Adesina met President Mnangagwa on Wednesday.
Engagements between AfDB and Government focused on potential areas of technical assistance.
It is believed the Ivory Coast-based Pan-African lender can leverage its ties with international financial institutions (IFIs) to assist Harare.
Dr Adesina is already scheduled to meet several African and G7 ambassadors and representatives of IFIs accredited to Zimbabwe.
Overall, the country’s public and publicly guaranteed external debt was US$14,4 billion at the end of December 2021, of which US$6,6 billion was in arrears.
Accessing resources from international financiers has been nearly impossible for the past two decades.
The external debt to multilateral lenders –World Bank (US$1,5 billion), AfDB (US$711 million), European Investment Bank (US$385 million), among other multilateral creditors – was US$2,7 billion in the same period.
The AfDB has only extended US$145,8 million from 2010 to June this year under the Zimbabwe Multi-Donor Trust Fund (ZimFund).
Dr Adesina said the lender was duty-bound to help Zimbabwe. “So, we are committed as a bank to seeing the debt expunged. We will walk with our partners, we will walk with the World Bank, we will walk with the IMF; we will walk with all the bilateral partners,” he said.
Finance and Economic Development Minister Professor Mthuli Ncube said the overall strategy is to clear the arrears.
“We have to continue with the reforms we have started and make sure they are completed.”
In March last year, Government resumed making quarterly token payments to IFIs such as the World Bank Group (US$1 million), the African Development Bank Group (US$500 000) and the European Investment Bank (US$100 000) as a commitment to engage and re-engage with the international community.
Quarterly payments of US$100 000 to each of the 16 members of the Paris Club were also made since September last year.
The Finance and Economic Development Ministry’s Arrears Clearance, Debt Relief and Restructuring Strategy (ACDRR Strategy) document released in April this year described the debt overhang as a serious impediment to the country’s “socio-economic development and transformation agenda”.
Minister Ncube has been aggressively considering various debt-clearance strategies.
Although the World Bank Group came up with a US$157 billion package to help developing countries fight Covid-19, Zimbabwe was left in the cold.
Similarly, the World Bank announced another US$2,3 billion facility meant to help countries in Eastern and Southern Africa increase resilience of the region’s food systems and ability to tackle growing food and nutrition insecurity.
However, the onerous debt was a stumbling block once again.
HIPC
Therefore, the AfDB is well-positioned to assist.
What are the options for Zimbabwe?
The first option that Dr Adesina is set to explore is for Zimbabwe to go through the Highly-Indebted Poor Country (HIPC) route.
HIPC was designed to ensure indebted countries are not overwhelmed by unmanageable or unsustainable debt.
HIPC provides maximum debt relief for beneficiary countries.
It presently has 39 countries that are eligible for special assistance from the IMF and World Bank.
Qualifying for HIPC is, however, not automatic.
As part of its ACDRR Strategy, Zimbabwe has expressed its willingness to be considered.
“If the window for the HIPC initiative is availed, Zimbabwe is keen to participate in the HIPC initiative process in order to benefit from maximum debt relief,” reads the ACDRR Strategy in part.
But for Zimbabwe to qualify, it would require a modification or exception granted by the International Development Association (IDA) executive board to the World Bank HIPC initiative eligibility criteria for the reclassification of the country as an IDA-only country.
Conferring IDA-only status to a country is a signal to donors and creditors that a country faces special development challenges and should be considered in a different light from other developing countries. In practice, the international aid system allocates extra benefits to countries deemed IDA-only and denies some of those benefits to countries classified otherwise.
For Zimbabwe to be conferred with an IDA-only status, it will also require IMF’s board guidance to the HIPC initiative.
Options
The second option is a hybrid plan that involves using Zimbabwe’s own resources and bridge concessional loans from bilateral development partners who are willing to channel resources to support Zimbabwe’s ACDRR Strategy.
The plan will also include rescheduling outstanding and disbursed debt falling due after arrears clearance, as well as negotiating for rescheduling with bilateral creditors (Paris Club and Non-Paris Club).
Further, comprehensive negotiations would be undertaken to restructure all bilateral debt outstanding and disbursed (DOD) (US$1,5 billion) to include grace periods and longer-term maturities to avoid accumulation of arrears after the implementation of an arrears-clearance strategy.
But clearance of arrears to the World Bank Group and AfDB using some of Zimbabwe’s own resources, including part of its allocated Special Drawing Rights (SDRs), is based on firm expectation that new resources from IFIs and the international community will be unlocked.
Dr Adesina, therefore, has his work cut out.
“I really believe that we need to reinvigorate, re-dynamise the economy here because it is critical for the SADC region and also in the conversation of AfCFTA (African Continental Free Trade Area),” Dr Adesina added.
While the ACDRR seems comprehensive and well thought-out, Dr Adesina still will not have it easy.
There are fears the United States of America would block or frustrate the process through the Zimbabwe Democracy and Economic Recovery Act (ZDERA).
The ACDRR Strategy critically hinges on strengthening and continuing with the reform programme, and stepping up re-engagement with all creditors including the United States to get its buy-in and support.
On its part, Government insists it has stayed the course in implementing key reforms.
Minister Ncube added: “We have introduced a new pension fund and moved away from the pay-as-you-go method. The pension fund is already investing in the economy as well.
“Government now has an internal audit arm which audits the Ministry of Finance (and Economic Development) and across all Government departments. This Government has also not used the central bank overdraft facility and this Government will continue these reforms.”
