Zimbabwe is making regular payments to the Poverty Reduction and Growth Trust and since mid-2013, quarterly payments to the World Bank and the African Development Bank as part of efforts to clear the debt.
This is part of Government objective of seeking comprehensive debt relief from bilateral creditors. The International Monetary Fund noted in its recent Article IV reported that Government was moving in the right direction by making efforts to work towards arrears clearance and debt relief.
It, however, urged Government to avoid selective debt service – supporting repayments only to creditors providing fresh resources – as this will complicate reaching an agreement with creditors on a debt resolution strategy; increase their payments to the Fund over time as the country’s capacity to pay improves; and engage with the other international finance institutions to seek to agree on a comprehensive arrears clearance strategy.
Finance and Economic Development Minister Patrick Chinamasa has sought to improve ties with the IMF, and to follow the Staff Monitored Programme. Recent reports have Minister Chinamasa citing the IMF’s recent appointment of its first resident representative in the country for 10 years as evidence that relations are strengthening and says the two sides broadly agree on what structural reforms Zimbabwe needs.
“We’ve had a very constructive engagement. There are some challenges, which are talked about openly. The ratio of wages in the budget is too high, for instance. It’s 85 percent. We’ve indicated to the IMF that we can’t correct it overnight,” he said.
The discussions are part of attempts by Zimbabwe to get it’s roughly $7 billion of external debt, amounting to almost three-quarters of gross domestic product, written down and pave the way for it to access new loans.
Economists have said the biggest challenge facing the country is the major debt default from IFI’s. Economic commentator John Robertson said; “We have negative foreign reserves and it is going to be hard for the country to secure lines of credit.
“We should not forget that those institutions lend money that belongs to other people and they cannot afford to commit funds to Zimbabwe with our current bad borrowing reputation. The country should make efforts to clear the existing debt in order to unlock funding.”
Economist Dr Eric Bloch said as long as the arrears are not serviced, Zimbabwe would struggle to secure funding.
The IMF said that while the arrears are being cleared there was need to fund Government financing needs with grants and concessional loans but added that contracting or guaranteeing non-concessional loans should be minimised and linked to critical infrastructure projects.
The mission also encouraged the authorities to re-build international reserves and avoid further drawing down their SDR Holdings.