Zimbabwe has set a November 2019 deadline to clear nearly $2 billion arrears owed to the World Bank and the African Development Bank as the southern African nation reengages with international financial institutions before accessing fresh funding to boost economic growth, Finance minister Mthuli Ncube has said.
Zimbabwe, which suffered decades of decline has been ineligible to access fresh credit from global funders after defaulting on its debt at the turn of the century.
The country is saddled with a $16,9 billion debt, with external debt accounting for approximately $7,4 billion. Out of this, approximately $5,6 billion is in arrears.
Resolving the country’s external debt arrears, which have proscribed Zimbabwe from accessing offshore support to extricate the economy from crisis is now seen as a key step in the country’s economic recovery.
The debt arrears have affected Zimbabwe’s credit rating, making it a pariah in international capital markets. Clearing loan arrears is a binding prerequisite for securing new international capital.
In 2016, Zimbabwe paid off arrears to the International Monetary Fund (IMF), who many creditors take a cue from. But, it still owe the World Bank (WB) about $1,3 billion and the African Development Bank (AfDB) about $601 million, hampering its ability to tap into development financing from the two.
In 2016 the AfDB agreed to ring-fence Transition Support Facility Pillar II resources forarrears clearance of Somalia, Sudan and Zimbabwe on a first come, first served basis. To get new funding from AfDB, Zimbabwe—classified as one of the vulnerable economies on the continent together with the other two African countries needs to clear its arrears first before December 2020 when the funds are still available.
Ncube said clearing the $1,7billion in arrears to the two multilateral financial institutions is important to Zimbabwe’ s economic recovery, as it is seen as a major step for the country to return to the international markets.
“We have to clear the preferred creditors first (WB and AfDB) who we owe close to $2 billion in arrears. I can’t give you the very specific things on how we are going to do it because some of the things are sensitive. I can, however, tell you that we have access to some resources within the WB and AfDB. But, by this time (November) next year we want to clear the arrears with the two financial institutions. This is our target now,” Ncube said.
“The reason why we want to clear this, is because our banks continue not to be able to access lines of credit. Each time, they look for lines of credit, they can’t go (offshore) direct but have to turn to the Reserve Bank of Zimbabwe. So, by paying, we will be trying to create or improve our crediting standing with creditors.”
In 2015, Zimbabwe came up with a debt and arrears strategy to repay the $1,8 billion owed to the IMF, WB and AfDB. The strategy was signed with the three multilateral financial institutions in Lima, Peru.
Zimbabwe, which has been working on the payment plan agreed with foreign lenders in the Peruvian capital, has since settled its debt obligation amounting to $110 million, owed to the Washington based multilateral lender, the IMF.
Zimbabwe, whose external dent presently stands at about $7 billion, still has arrears with the WB, which is about $1,2, while $601 million is owed to the AfDB.
Zimbabwe missed several targets in settling the debt arrears. Now, the Finance Minister is now targeting November next year.
Ncube said once government clears the debt arrears to the WB and AfDB, focus will shift to bilateral debts with the Paris and non-Paris Club members.