‘Lack of reforms delays debt clearance deal’
LIVINGSTONE MARUFU
Business leaders and multiple economists have stated that the government’s failure to implement reforms has delayed Zimbabwe’s debt arrears clearance and resolution deal, which is expected to unlock long-term funding for local companies, Business Times can report.
It comes at a time when local companies and banks have found it difficult to secure significant lines of credit due to high country risk.
Official data obtained from the Ministry of Finance, Economic Development and Investment Promotion, indicates that the country’s debt burden is US$18bn with US$12.7bn being external debt including liabilities on the central bank balance sheet that the Treasury has taken on. Domestic debt is estimated to be more than US$5bn.
About US$9.1 billion of the total amount of external debt is owed to bilateral and multilateral lenders, with the remaining amount payable to the Paris Club and other parties.
Regretfully, around 76% of that sum is made up of penalties and compound interest.
Business Times can report that the Zimbabwe National Chamber of Commerce (ZNCC) stated in a position paper submitted to Professor Mthuli Ncube, Minister of Finance, Economic Development, and Investment Promotion, that because of the nation’s high-risk status, businesses are finding it difficult to obtain affordable financing from offshore lenders and that urgent reforms are necessary to speed up the procedures.
“Arrears should be cleared to unlock new funding lines and any debt accumulation should be in line with the Public Debt Management Act [Chapter 22:21]. There is a view that the private sector is being sidelined in the debt restructuring negotiations (external debt dialogue platform) at a time when they could proffer solutions to the debt puzzle,” ZNCC said.
The Bankers Association of Zimbabwe (BAZ) also expressed disquiet.
“The authorities should finalise the Arrears Clearance and Debt Relief Strategy -which hinges on the continued strengthening of cooperation with international financial institutions (IFIs), negotiating for arrears clearance and debt relief and restructuring with the IFIs,” BAZ said.
According to multiple economists, the government ‘s chances of repaying the debt soon are slim because of significant headwinds.
“Zimbabwe’s debt will never be fully paid back. The best route is for it to be written off but the geopolitics are not in favour of a debt free Zimbabwe,” economist Vince Musewe said.
He added: “Arrears will continue to balloon and it’s a never-ending debt abyss. This of course will continue to impact access to offshore finance for business.”
Another economist, Dr Prosper Chitambara concurred: “We need to expedite the arrears clearance and engagement with the international community because it increases the risk premium that is associated with Zimbabwe as an investment destination. It makes it difficult for the private sector and government to unlock capital offshore.
“The country and local firms have been borrowing at high market interest rates plus high premiums. It is not going to be resolved overnight but the reengagement becomes very critical. The government has agreed on the kind of reforms that need to be implemented to unlock funding. It is something that we need to work vigorously on. It is a major albatross around our neck as an economy.”
Yet another economist, Professor Gift Mugano said the country fell short of the requirements needed by the IFIs.
“The country is far from impressing the multi lending institutions as it failed to implement economic, governance reforms and the compensation of former commercial white farmers.
Instead, the government is failing to privatise the state owned enterprises as they were all brought under Mutapa Investment Fund and are immune from scrutiny. The exchange rate is still controlled by the central bank while on the governance reforms, massive human rights abuses remain rampant and the former farmers haven’t received a penny from the government. This means no progress has been made to that,” Professor Mugano said.
