Zim’s arrears plan faces headwind

…as US Senate challenges Chinese loans



Government has intensified efforts to reengage the International Monetary Fund (IMF) and other multilateral lenders after the United States Senate last month lobbied against lending funds to developing countries that received infrastructure loans from China at usurious rates, Business Times has established.

Harare is seeking to clear $1,2 billion arrears to the World Bank and $600 million to the African Development Bank in order to attract fresh funding.

Already government has cleared the $108 million IMF arrears using special drawing rights holdings and is now seeking up to $2 billion to stimulate economic activity.

Information gathered by Business Times shows that President Emmerson Mnangagwa, Finance minister Mthuli Ncube and other government officials are expected to meet World Bank officials on the sidelines of his visit to the United Nations general assembly in New York.

Last month, Zimbabwe approached the Chinese seeking to ease the country cash shortages as well as stimulate economic growth but the southern African nation ended up receiving commitment to finance its infrastructure projects.

Zimbabwe owes $160 million to China Eximbank and Sinosure and the debt has been a sticking point in Harare’s bid to secure more funding.

According to impeccable sources, US Senators who include David Perdue in August wrote to the Department of Treasury advising them to stop funding countries that accessed “predatory infrastructure loans” from the Chinese as they could end up in vicious debt cycles.

According to the IMF, the US is the largest shareholder of the 189-member financier, controlling 16,52 percent, closely followed by Japan (6,15 percent) and France and United Kingdom (4,03 percent apiece). Zimbabwe, which has been in arrears since 1999 has a 0,17 percent stake.

“Members of the US senate expressed concerns that bailout requests to the IMF by developing countries who have accepted predatory Chinese infrastructure financing could result in debt-trap diplomacy as well as national security threat they pose to the US,” a source said.

“In Africa the senators cited Djibouti where China provided $1,4 billion infrastructure funding equivalent to 75 percent of the country’s GDP. The loans which came from Export-Import Bank of China have now exposed Djibouti’s extremely risky nature of its borrowing programme as seen by its ballooning external debt in just over two years.”

Zimbabwe was working on the Lima plan – a payment plan agreed with foreign lenders in 2015 in the Peruvian capital. Efforts had been made to clear the arrears using a syndicated facility support by Afreximbank. Finance Minister Ncube said the debt plan is still work in progress.

Ncube said there were no timelines yet with regards arrears clearance. “The first step is to study the options that are on the table. Can we go the HIPC, HIPClike routes or do we go with a commercial option. After that we will need to engage partners on what’s workable. But arrears clearance is a big issue and a key pillar of economic reforms.”

In earlier opinion pieces, Ncube suggested that need to re-open the HIPC eligibility requirements and make a positive finding of Zimbabwe’s eligibility and qualification for such relief. Furthermore, the international financial actors would need to come together to finance Zimbabwe’s HIPC debt relief.

In order to receive full and irrevocable debt reduction available under the HIPC Initiative, Zimbabwe would, inter alia, need to establish a track record of good performance under economic adjustment programmes supported by the IMF and the World Bank.

He said if qualification to HIPC is unsuccessful, Zimbabwe would have other options to address its debt problem. For example, the international community may be willing to create a sui generis international debt relief approach for Zimbabwe. Alternatively, an ad hoc debt restructuring could be orchestrated through the Paris Club, as was done for Iraq 2004 and Myanmar in 2013, at least with respect to official bilateral and private external debt.

Mnangagwa has undertaken to fix the country’s rundown infrastructure after he was elected in July to succeed long-time leader Robert Mugabe. In 2012, the World Bank estimated that $33 billion is required over two decades to fix the country’s core infrastructure.In his speech to the 19th Party Congress, Chinese President Xi Jinping said, “China’s development does not pose a threat to any other country. No matter what stage of development it reaches, China will never seek hegemony or engage in expansion.”

Ncube on Tuesday told journalists that government would be stepping up its re-engagements efforts, adding that the United Kingdom has been supportive of the country’s debt and arrears clearance programme.

“The UK has been a strong partner of Zimbabwe on the whole of the arrears clearance agenda supporting us all the way on how to think about it, how to get the right partners in the room, convening very important international meetings here and there, helping Zimbabwe along the way in the quest to resolve the issue of arrears clearance,” Ncube said.

“We will be going to Bali (Indonesia) for the World Bank/ IMF meetings and again further conversation around arrears clearance, for which again I thank the UK for being a key partner in moving that process along.”

Outgoing UK ambassador to Zimbabwe Catriona Laing said Zimbabwe required more economic and political reforms to fully engage the international community.

“The UK and other creditors would be interested to hear what you say and to see what the timelines are going to be because I think the sooner we get on track with some of these challenging reforms, the better. But we recognise that you will need support and we are here to provide that support and try and encourage a process of back to an IMF programme, perhaps through an interim Staff Monitored Programme.”

A Staff Monitored Programme (SMP) is a supervised economic reform plan undertaken by IMF members with support from the global lender. In 2013, IMF approved an SMP for Zimbabwe which ran up to the end of 2015. In its review, IMF said Zimbabwe had met the commitments under the SMP despite economic and financial difficulties.

Despite clearing the IMF arrears, Zimbabwe has to settle its overdue obligations to two other preferred creditors—AfDB and World Bank.

It also owes the Paris Club and other bilateral creditors.

Ncube said on Tuesday that Zimbabwe would work on an economic stabilisation programme to be unveiled next month adding the world “wants to hear from us” on our economic pathway.