International financial institutions have to cancel Zimbabwe’s crippling debt, the Zimbabwe Coalition on Debt and Development (ZIMCODD) has said, as the burden proscribes the southern African country from accessing cheap lines of credit required to reboot the economy.
Zimbabwe’s external debt burden stood at US$8.1bn in June this year, while the domestic debt is just over ZWL$12bn, according to Finance Minister Mthuli Ncube.
Several countries recently received debt service relief from the International Monetary Fund (IMF) and other international lenders, meant to help address the impact of Covid-19 pandemic.
Zimbabwe was, however, locked out of Covid-19 related aid programmes because of its failure to clear debt arrears to international financiers.
ZIMCODD warned that failure to cancel the unsustainable debt was likely to push more people into extreme poverty.
“Debt cancellation for Zimbabwe has never been more crucial than now when the country is grappling with the Covid-19 pandemic which comes at the back of socio-economic problems, the aftermaths of Cyclone Idai, chronic drought, poor governance, illicit financial flows, endemic corruption, and external debt overhang which have deepened the economic headwinds in the country,” ZIMCODD said at the recent Global Week for Action on Debt Cancellation.
At the launch of the 2021 preBudget Strategy paper, Ncube disclosed that internal arrears are currently estimated to be US$6bn.
He said it was key to resolve the debt issue as Zimbabwe vigorously pushes for re-engagement with the international community.
He said successful “engagement on this issue will facilitate arrears clearance and open new lines of credit critical for stimulating domestic production and productivity” and fast track the attainment of the Vision 2030.
The rising debt burden, analysts said is clearly a source of concern for local lenders and the broader international community.
This has contributed significantly to the crisis facing Zimbabwe, analysts said.
This further risks Zimbabwe’s country’s risk profile.
Zimbabwe’s resources are insufficient to finance its vast development agenda.
But, its failure to deal with its debt crisis of the now unsustainable debt, will merely sow the seeds for more trouble, analysts told Business Times.
In the absence of offshore loans, it is difficult for Zimbabwe to implement any development programme.
It forces the government to resort to domestic borrowing, crowding out private investment leading to slow growth.
Clearing the debts is important for Zimbabwe’s economic recovery.
“Zimbabwe has got an unsustainable debt, so (it) needs to resolve its debt crisis,” former Finance Minister Tendai Biti told Business Times.
He added: “Debt puts a premium on development for instance right now we can’t access huge amounts of money that are at the World Bank (WB), International Monetary Fund (IMF) and the African Development Bank (aFdb) because of debt.
So, it is very important that Zimbabwe clears it’s debt and it is also very important that government lives within its means because the debt in Zimbabwe is recurrent, they’re not borrowing for development, they’re borrowing for consumption so it is a very dangerous debt which is eating into future generations”.
Speaking at the recent Annual Meetings of the AfDB Group, Ncube said, “It should be noted that the country’s capacity to clear old arrears and meet obligations arising from new financing hinges on the strength of the economy, which in turn requires implementation of deep reforms under Transitional Stabilisation Programme.”
He added, “Government is still committed to discussing with the IMF on a recalibrated Staff Monitored Programme in order for us to continue to build a successful track record of sound policy towards a future financial fund supported programme.”
Creditors like the IMF and the WB stopped loaning to Zimbabwe in 1999 after the country neglected to service its debt.
Zimbabwe missed several targets in settling its debt arrears to multilateral financial institutions in the past few years.
This has 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 IMF, who many creditors take a cue from.
But, it still owe the World Bank about US$1,3 billion and the African Development Bank about US$601 million, hampering its ability to tap into development financing from the two.
In 2016 AfDB agreed to ring-fence Transition Support Facility Pillar II resources for arrears 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.