Ndakaziva Majaka Business Reporter
AS the country’s central bank and treasury chiefs head to the forthcoming World Economic Forum in Davos, Switzerland next week, Imara Asset Management (Imara) says the country is in desperate need of a fresh capital injection and debt forgiveness. The respected asset firm pointed out that while Harare has listed counters creating value for shareholders under tough operating conditions, it remained crucial for the country’s creditors, especially multilateral lenders, to extend an olive branch to Zimbabwe.
Zimbabwe is currently in debt distress with public and publicly guaranteed debt at 97 percent of Gross Domestic Product against the statutory provision of 70 percent.
According to the 2019 Budget Statement, Zimbabwe’s total public debt stood at US$17,69 billion as at the end of September 2018, while the 2019 Budget Statement stated that external debt was valued at US$7,7 billion and domestic debt was US$9,6 billion
“Key to Zimbabwe’s economic recovery is a fresh capital injection and debt forgiveness/restructuring, we believe that announcements signalling progress in this regard will be catalytic for our investments in the country,” Imara said in a note on Southern African bourses.
The asset managers pointed out that they have taken a long term view to Zimbabwe.
“. . . We are preferring to look through the political noise and focusing on identifying corporate champions that can generate shareholder wealth no matter the environment. The Old Mutual Implied Rate allows us to get both liquidity and a reasonable valuation as we wait,” reads the note.
Of the country’s debt, only 25 percent represents the principal amount, while 75 percent is an accumulation of arrears and interest owing to Zimbabwe’s failure to settle its external debts in the past two decades.
External debts are owed to multilateral institutions such as the World Bank, African Development Bank and the European Investment Bank (US$2,6 billion) and bilateral creditors (US$4,7 billion). A total of US$5,9 billion, more than 70 percent of the external debt, consisted of arrears and penalties for non-payment.
Despite having promised borrowers a comprehensive debt plan since last year, government is yet to present the document and hopes are that its on the Davos agenda.
While Zimbabwe’s quest to pursue debt forgiveness option has been thrown into disarray in the past with the country failing to qualify for the African Development Bank (AfDB)’s Highly Indebted Poor Countries (HIPC) option, analysts remain optimistic.
Already Zimbabwe has settled its International Monetary Fund (IMF) arrears of US$107,9 million in November 2016.
What is now outstanding is the clearance of the outstanding arrears to the World Bank of $1,3 billion, AfDB, $680 million and the European Investment Bank of $308 million.
Clearance of the arrears is expected to open fresh lines of credit with international financial institutions, which stopped extending support to Zimbabwe in 1999 after the country defaulted on its payment.
IMF resident representative Patrick Imam is on record saying without attempting to clear the arrears, Zimbabwe risks global isolation.
However, despite all the drawbacks and the hindrances, Zimbabwe still has options at its disposal such as fiscal discipline, regular debt audits, adherence to legal debt management provisions and implementation of punitive and deterrent measures, among others.
According to the Head of the Zimbabwe Public Debt Management Office in the Ministry of Finance and Economic Development, Andrew Bvumbe, fresh capital has not found its way into Zimbabwe because the country is in debt distress.
“I think it’s critical that, going forward, we have to address the debt arrears. There are no two ways. We have to clear the arrears and we have to normalise relations with all our creditors. The issue we have right now is we have arrears with three multi-laterals, they were four. Those four, as you are aware, are the preferred creditors so you cannot clear any bilateral or other multi-laterals without clearing those four. We are done with IMF and the issue we are working with now is to clear the arrears with the Breton Woods institutions and the African Development Bank,” he said.
The Treasury official said the country was on track as evidenced by its Staff-Monitored Programme with the IMF and the reform agenda monitored via the Transitional Stabilisation Programme.