How Zim plans to charm creditors

NDAMU SANDU

Zimbabwe has pledged to establish a market determined and competitive foreign exchange rate regime as part of “housekeeping issues” under an arrears clearance and debt resolution process.

The reforms, which are economic and governance, were set by Zimbabwe and have benchmarks as Harare bids to get support from multilateral and bilateral creditors.

Zimbabwe owes US$5.7bn and US$2.6bn to bilateral and multilateral creditors respectively. Of the debt, the bulk is made up of arrears (69%) on debt to bilateral creditors and 91% to multilateral creditors.

According to an economic reform matrix seen by Business Times, Zimbabwe will remove restrictions on forex trade by banks, authorised dealers and on business transactions. It will implement regulations that allow the market to set the exchange rate.

Zimbabwe said there are regulations in place and implemented by end 2023, which include a clear market-based exchange rate in operation, moving towards an interbank spot market operational.

The central bank this week began selling forex at the market-determined exchange rate through banks as it moves to strengthen the foreign exchange interbank market.

Harare also pledged to end all central bank’s quasi-fiscal activities. This includes ending foreign exchange retention of exports and moving all central bank’s liability to the Ministry of Finance and Economic Development.

The Ministry of Finance said recently it would fund the local currency component of the 25% foreign currency surrendered by exporters in order to “eliminate the creation of additional money supply”.

According to the matrix, ending quasi-fiscal activities involves implementing prior steps such as preparation of options to address the RBZ forex-denominated liabilities to mitigate recurrent liquid pressures, which will include fiscal policy adjustment in place to cover liabilities previously serviced through export retention and other RBZ operations required to service liabilities.

On governance reforms, the matrix has selected 17 out of 126 sub-indicators from three main indices (Mo Ibrahim Index, Rule of Law Index and Corruption Perception Index) to be used for measuring progress in the context of the Arrears Clearance and Debt Resolution Process.

From the Rule of Law Index, there are nine sub-indicators, which will be benchmarked. These are government powers are effectively limited by the judiciary; government officials are sanctioned for misconduct; transition of power is subject to the law; government officials in executive branch do not use public office for private gain and the right to life and security of the person is effectively guaranteed. They also include due process of law and rights of the accused; freedom of opinion and expression is effectively guaranteed, freedom of assembly and association is effectively guaranteed and due process of law and the rights of the accused.

Zimbabwe and its creditors have agreed on seven sub-indicators on the Mo Ibrahim Governance Index, which are democratic elections, absence of violence against civilians, impartiality of the judicial system, judicial processes, civil society space, institutional checks and balances and public procurement procedures.

The overall score on the Transparency International Corruption Perception Index will be used.

According to the matrix, Zimbabwe targets an increase in the overall governance score on the Mo Ibrahim Index from 49.54 last year, 51.03 this year, 52.56 in 2024 and 54.14 in 2025.

On the absence of violence sub indicator, Zimbabwe has projected an improvement in the score from 80.34 in 2022, rising to 82.75 this year, 85.23 in 2024 and 87.79 in 2025.

The indicator measures the number of violent events against civilians committed by government forces and non-state actors, as well as the levels of political violence in a country.

On the impartiality of the judicial system, Zimbabwe targets a score of 43.18 this year, 44.47% in 2024 and 45.81% in 2025. The indicator assesses the extent to which the judicial system is impartial based on the independence of the courts, the autonomy of judges and the appointment of judges.

On the Corruption Perception Index, Zimbabwe aims to attain a score of 25 this year, 26 in 2024 and 27 in 2025.

Zimbabwe is working on an arrears clearance and debt resolution plan. The initial stage of the process is undertaking economic and governance reforms and paying the US$3.5bn compensation to former farm owners and resolution of land that was protected by the BIPPAs.