PHILLIMON MHLANGA
President Emmerson Mnangagwa’s administration today faces its international creditors at a summit in the capital, Harare, as both sides are increasingly desperate to find a lasting solution to the rising debt crisis.
The crucial meeting, which will be co-chaired by the former president of the Republic of Mozambique, Joaquim Chissano and the president of African Development Bank (AfDB), Akinwumi Adesina comes at a time Zimbabwe has lurched into a critical juncture and needs to wean itself from the debt trap and associated macroeconomic stagnation.
So dire is the situation that total external debt has risen to US$14, 043bn as of end of September 2022 from about US$8bn in 2019, according to official data obtained from the Ministry of Finance and Economic Development,
Out of this amount US$6.3bn are arrears.
Zimbabwe owes US$1.48bn to the World Bank, AfDB (US$671m), the European Investment Bank (US$372m) while the Paris Club and non-Paris Club are owed US$3.55bn and US$2.22bn respectively.
The balance is owed to bilateral creditors, multilateral creditors, blocked funds, Treasury bonds and other creditors.
Multiple analysts said the public debt is an issue that has contributed significantly to the economic crisis facing Zimbabwe.
If not managed properly, they said, the government’s ambitious Vision 2030, where it aspires to be a middle income economy by 2030, will remain a fallacy.
They said the government should simultaneously implement structural, political and sound macroeconomic policies as part of a sustainable and inclusive debt management strategy.
Economist, Gift Mugano, told Business Times that it was the first time to have that “kind of a meeting which was very intense in the past few years”.
“It tells you that the willingness from the creditors to find a lasting solution on the debt issue with Zimbabwe.
“And it gives a renewed hope of coming up with a credit formula for debt clearance strategy because when people are in one room, you could then find areas that could agree on, which is different situation when you are on your own as a country or as a government and come up with a proposal to number of partners with diverse debt position which could not address their position.”
He said today’s indaba is a match making meeting “where you are matching the interest of the creditors against your capability as a debtor to meet halfway” adding sincerity among the partners would result in a sound debt clearance strategy which can be acceptable globally.
“What I also like about this meeting is the involvement of the president of the AfDB in providing leadership, guiding the Zimbabwe government.
“There is also political commitment from the former president of Mozambique (Joachim Chissano). There is also political will from the region to help Zimbabwe. So, that is very significant. For me, if there is an agreement they will be kind of guaranteeing that, who then says you need to play the ball. They are witnesses. It’s very important”.
Mugano believes the government will not “commit suicide” by promising heaven on earth as Zimbabwe has other pressing matters to resolve such as health, education necessitating the need for safety nets.
He said the discussions should be centred on reform strategy “because with debt you can provide a sound reform strategy which of course be powered with token payments.
Mugano said the failure to strike a deal would mean that the “risks carried on the debt overhang will become so painful”
The risk premium on private businesses when they want to borrow money from the global market will be very high as there will be an attached risk premium, Mugano said.
AFC Holdings head of strategy and business development Joseph Mverecha said today’s meeting is a major step forward of the debt negotiation and also the government taking the step further in the arrears clearance programme.
We definitely need a concrete debt arrears programme which is agreed with all the creditors, the multilateral creditors, the bilateral creditors, the Paris and non-Paris clubs. Everyone must come to the table. The involvement of former president of Mozambique (Chissano) and president Adesina of AfDB is definitively going to be significant to this initiative. It can only be good for the country,” Mverecha said.
He added: “We cannot even dream of failure. We have to resolve it (debt overhang). We cannot even think of failing to resolve this problem because Zimbabwe sits outside the international community in terms of international finance, access to international capital markets. Zimbabwe is absent from that space because of what we owe to the multilateral creditors. They are important. So, we cannot fail. We have to get to some agreement. The roadmap also must also include macroeconomic reforms but should allow us to service our debts the sustainable way without impeaching on the country’s social development in terms of investments in health, education and infrastructure, among many.”
Tafadzwa Chikumbu, a director at Transparency Zimbabwe, said Zimbabwe is one of the risky countries to lend to due to its failure to pay both the premium and also the rate at which we accumulated arrears since 2000.
“It is critical to clear the arrears, opening a new chapter. It is important to borrow responsibly. There have been questions around the legitimacy of the debt, therefore it is very necessary to engage, come up with a strategy to clear the arrears and open a new chapter,” Chikumbu told Business Times.
Zimbabwe is one of the seven countries that are in debt distress. Other countries in debt distress are Eritrea, Gambia, Mozambique, Republic of Congo, Sao Tome and Principe and South Sudan.
For the past 23 years, Zimbabwe has neglected to service its debts.
This has constrained the government from accessing foreign loans except from a few creditors because there are no guarantees.
