eBusiness Weekly
Golden Sibanda
Zimbabwe is pursuing a less costly multi-million dollar bailout package from the Group of Seven (G7) wealthy nations to avoid contracting choking and expensive commercial debt for the funding it needs to clear arrears with major global lenders, according to Finance and Economic Development Minister Professor Mthuli Ncube.
The Southern African country has for over nearly two decades failed to unlock fresh and cheaper external lines of credit due to lingering debt to the global lenders and Minister Ncube contends the G7 hold the key to Harare’s debt freedom.
But while Zimbabwe hopes the G7 industrialised nations will loosen their purse strings for the bailout to help it pay off its ballooning debts to global lenders, the majority of G7 states (mostly European Union members) imposed economic sanctions on the Southern African country.
Zimbabwe is also under economic sanctions, since 2001, from Britain’s strong ally, the United States, following its 2001 bilateral dispute with United Kingdom, sparked by the former’s decision to redistribute former white-owned farms to indigenous farmers.
But Minister Ncube insists Zimbabwe is taking the right precautionary measures trying to secure a cheaper financial bailout funding from the G7 industrialised countries, who are also major shareholders of the International Monetary Fund, World Bank and African Development Bank, whom it owes billions of dollars from previous loans.
Analysts said what Minister Ncube was basically doing was rescheduling the debt, which is in violation of debt agreements and therefore now subject to punitive interest.
As such, Zimbabwe is now angling for US$1,9 billion in concessional loans from the G7, a
gathering of France, Italy, Canada, Germany, United States, Japan and United Kingdom, to clear its overdue positions with the AfDB and the World Bank.
In 2016, Zimbabwe cleared US$110 million arrears with the IMF, but must settle AfDB and World Bank debts to get fresh funding because of the pari passu principle for multilateral lenders.
Once the country clears its arrears with AfDB and the World Bank, Zimbabwe’s finance chief is confident the country would also quickly be able to secure a US$1 billion loan package from the two global lenders to clear its obligations to the G7 nations.
Minister Ncube also told international media this week that Zimbabwe expected to have part of its US$2,7 billion debt to the Paris Club members, who are also members of the G7, forgiven and restructured once it has paid off AfDB and World Bank.
Why G7?
And on Tuesday Minister Ncube told Business Weekly that while the multilateral lenders wanted Harare to settle its outstanding liabilities, which are blocking access to low cost financing, they could reject any debt payments from commercial loans.
He said AfDB and the World Bank might feel Zimbabwe will be left in more costly debt if it uses commercial debt to clear arrears and therefore decline payment from such funds.
“In terms of the roadmap for arrears clearance we need to work closely with the current creditors, at both first and second stages.
“ First stage is about clearing arrears to the African Development Bank and World Bank, and again, we want to work with creditors behind those two institutions, which are basically the Paris Club partners plus.
“Our first port of call is to work with them to see how they can assist us in terms of lines of credit to clear those arrears. The same applies to the second stage; it’s still the same shareholders in terms of the Paris Club bilateral partners. Again, we will work with them to restructure our debt,’ he said.
Minister Ncube said the only door Zimbabwe must walk through in terms of the roadmap for the arrears clearance plan was the IMF supervised Staff Monitored Programme (SMP).
The macro-economic and Governance reform programme is already running and continues until December then there will be final assessment beginning of next year.
At that stage, Minister Ncube said, Zimbabwe will then engage more deeply with the lenders on how best it can be assisted to clear its debt working with the multilateral and bilateral creditors.
“The reason why we have to do it like that is that once you take on commercial debt right now to clear those arrears two things will happen. One; they might easily refuse to accept the resource because it’s commercial debt and you are more indebted.
“But secondly, it (commercial debt) jeopardises the second stage where debt now has to be restructured under the Paris Club arrangement (wherein) you have commercial debt.
“How is that going to restructured against concessionary debt. So, all we can play with now is concessionary debt, as opposed to commercial debt; that’s the roadmap,” the minister said.
Economic analyst Eddie Cross said what the minister was doing was right, as he was essentially rescheduling overdue and interest paying debt with new one that has new payment terms and timelines.
“He is rescheduling debt that is not being serviced, which therefore is in violation with the agreement and is an impediment to progress. What he is doing is repaying that debt with new debt and new debt will be paid over a new period of time.
“He is rescheduling and I think that is standard practice. Old debt is subject to penalty interest and new debt will be paying lower interest. You may not be serving old debt, but interest is accruing,” he said
Sanctions threat
The European Union (EU), sanctions on Zimbabwe were first imposed in 2002, by Common Position 2002/145/CFSP. The sanctions comprised of arms embargo and an asset freeze and travel ban on targeted people and entities.
The current EU sanctions on Zimbabwe are imposed pursuant to Council Regulation (EC), No 314/2004 (as amended) and Council Decision 2011/101/CFSP (as amended), and likewise consists of an arms embargo and targeted asset freezes and travel bans.
Likewise, the United States has imposed sanctions on Zimbabwe through the Zimbabwe Democracy Economic Recovery and Act first imposed in 2001 and renewed by president Trump last year.
Because of sanctions Zimbabwe cannot receive western development assistance, access IMF and World Bank lines of credit, as well as significant western foreign direct investment.
US sanctions on Zimbabwe are guided by the Office of Foreign Assets Control (OFAC), which enforces economic and trade sanctions based on the US foreign policy and Zidera, (as amended last year).
Zidera bars all major global financial institutions in which the US has influence from giving Zimbabwe development finance, and this includes major global lenders like IMF and World Bank.
According to US officials, there are 141 entities and individuals in Zimbabwe currently under US sanctions, including President Mnangagwa and former president Robert Mugabe.
Zim’s external debt
Zimbabwe’s total external public and publicly guaranteed debt stands at approximately US$8,5 billion; as at the end of June 2019, according to Minister Ncube.
In terms of the breakdown, multilateral institutions are owed a total of US$2,5 billion, of which the World Bank is owed US$1,5 billion, African Development Bank US$702 million, European Investment Bank US$309 million and other multilaterals US$74 million.
As at the end of June 2019, Zimbabwe’s total bilateral debt amounted to US$5,5 billion, with Paris Club creditors accounting for US$3,5 billion and non-Paris Club US$1,6 billion.
