A couple of weeks ago, it was announced – wrongly it turned out – that Zimbabwe would be among five countries whose debts would be cancelled by France. The others were Somalia, Chad, Ivory Coast and Sudan. Relief was already evident in those keen on Zimbabwe’s debt burden, but in an email to this writer, the French Ambassador to Zimbabwe said Zimbabwe was “not eligible to the Most Indebted Poor Countries (PPTE in French) Initiative as long as it has not settled its arrears with the International Financial Institutions.”
Ambassador Laurent Delahousse promised: “Appropriate decisions on Zimbabwe’s bilateral debt to France will be taken in due time, within the framework of the Club de Paris, once the relevant procedures have been followed.” Some statistics put US$3 billion as owed to the Paris Club by Zimbabwe.
Ambassador Delahousse applauded Zimbabwe for continued engagement with International Financial Institutions, “in particular on the issue of the Staff Monitored Programme.”
“All this goes in the right direction,” he said.
Meanwhile, the Finance Ministry has validated public debt, which thankfully showed some exaggeration in the current estimates of between US$10.7 billion and US$11 billion. Perhaps something between US$6 billion and US$7 billion, Finance and Economic Development Minister Patrick Chinamasa says.
Zimbabwe is by no means the most indebted country (even less poorest) in the world but the debt burden is surely giving authorities sleepless nights.
Not only has this precluded new borrowings and debt cancellations (which France would have kindly done), even in the absence of US sanctions that compel American officials to oppose extension of loans to, and cancellation of indebtedness of Zimbabwe.
Zimbabwe’s credit rating is poor meaning it is lent to at higher interest rates, over short periods.
In the mean world of economics, even non-experts in the field would know, the accrued debt bulges daily by way of interests, which defaults can only worsen.
The result is that Zimbabwe will not have cash to finance development and undertake major capital projects. ZimAsset, the latest economic blueprint in town hoped to be the sleight of hand for Zimbabwe’s economic turnaround, also situates the debt burden.
It states that: “Fiscal space remains severely constrained due to poor performance of revenue inflows against the background of rising recurrent expenditures and a shrinking tax base. The economy has also been saddled with a high debt overhang with an estimated debt stock of US$10 billion as at December 2012 caused by the country’s failure to access international capital and investment inflows as illegal economic sanctions have not been removed.”
Under the section dealing with “Funding and Debt Management” it is proposed, inter alia, that there will also be need to accelerate the progress which the country has registered in the re-engagement process with the International Financial Institutions (IFIs) and creditors.
“This will be done through the policy thrusts that Government has finalized with these institutions under the auspices of the Cabinet approved Zimbabwe Accelerated Arrears Clearance, Debt and
Development Strategy (ZAADS) and the Zimbabwe Accelerated Re-engagement Economic Programme (ZAREP).” The management of the debt is a rather complex, even emotional issue.
Just imagine what would be the conditions if Zimbabwe had qualified for France’s debt cancellations.
We are told that in this wonderful French plan, countries would still be required to pay up, and the money would be channeled back as aid. What an arrangement!
Just how the local sheikhs will deal with this will be very interesting. Not so many moons ago it was Tendai Biti who was trying to normalise the country’s books of accounts and proposed that Zimbabwe be rated “highly indebted poor country”.
Some quarters went ballistic, perhaps justifiably so, arguing that Zimbabwe was “too rich to be poor”.
Some people counter-argued that it was time Zimbabwe swallowed its pride and accept the tag so it would be salved of its burden. Still, others argued, the economic measures prescribed by the likes of IMF do not come cheap and come with conditions that impugn national sovereignty and requires structural adjustment.
After similar attempts to play by the book of the Bretton Woods Institutions harvested social misery in retrenchments and depletion of social services, structural adjustment has become such a dirty word.
Will Chinamasa accept it?
Already we know for a fact that he is not happy with the IMF’s insistence on the so-called Staff Monitored Programme but wants money injected for productive and development purposes.
Then it is hoped the Sovereign Wealth Fund will be another vehicle through which Zimbabwe’s debt can be cleared. An SWF is investment facility created by Government. Resource-rich countries from Kuwait to Botswana have these vehicles, which are worth trillions of dollars. The creation and operationalisation and currency of Zimbabwe’s own SWF will determine the debt complexion of the country in the coming few years.
One of the critical elements in the debt clearance effort will be how the country deals with the issue of sanctions, particularly the US. As transactions take place in US dollars, and thus handled by the Federal Reserve, an animal called OFAC is likely to sniff out and hound Zimbabwe’s funds.
So, in part, can the Euro be the new hero?