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Why Zim didn’t get IMF Covid-19 debt relief

15 Apr, 2020 - 01:04 0 Views
Why Zim didn’t get IMF Covid-19 debt relief

The Herald

Golden Sibanda Senior Business Reporter

The International Monetary Fund (IMF) has announced half a billion United States dollar debt service relief fund for the world’s poorest and vulnerable economies to help them fight and contain the spread of the Covid-19 pandemic.

Twenty-five affected countries, including several African countries, have been selected to benefit from the debt relief package.

However, Zimbabwe is not among economies that have been earmarked as beneficiaries; all because of a technical condition one must meet to qualify.

The countries that will receive debt service relief are Afghanistan, Benin, Burkina Faso, Central African Republic, Chad, Comoros, DRC, The Gambia, Guinea, Guinea-Bissau, Haiti, Liberia, Madagascar, Malawi, Mali, Mozambique, Nepal, Niger, Rwanda, São Tomé and Príncipe, Sierra Leone, Solomon Islands, Tajikistan, Togo and Yemen.

Finance and Economic Development Minister Professor Mthuli Ncube, yesterday said Zimbabwe did not expect to benefit from the money because it does not fall under countries to receive debt relief.

“Zimbabwe does not owe money to the IMF as we paid off loans with the world body.

“The support was mainly for countries that owe the IMF and are receiving relief on payments to the body in order to support the Covid-19 response,” said Prof Ncube.

An independent economic analyst Moses Chundu also concurred with Prof Ncube and said; “It is nothing political, but just something technical emanating from the fact that we cleared what we owed to the IMF.”

According to IMF managing director Kristalina Georgieva, the relief applies to member countries affected by the global pandemic, but critically, those that owe the Bretton Woods institution and whose obligations fall due in the next two months, so they can direct their scarce resources to the deadly health emergency and economic recovery programmes.

Declared by the World Health Organisation (WHO) as a global emergence, Covid-19 has killed tens of thousands across the world and infected over a million others.

The impact, however, has been massive in the USA, Italy, Spain and China.

Zimbabwe has recorded 14 cases of Covid-19 including three deaths since December 2019 when the virus was discovered in Wuhan, China.

In contrast, while Zimbabwe is struggling with a US$2,2 billion debt to International Financial Institutions (IFIs), including the World Bank and African Development Bank, Harare cleared its outstanding position of US$107,9 million with the IMF in October 2016.

This makes the country technically ineligible to  receive relief funds.

It is also because of unpaid overdue debts that despite being current on its obligations to the IMF, Zimbabwe is still not eligible to borrow concessionary funding from the global lender in line with the pari passu principle that requires equal treatment of multilateral and bilateral lenders, except if this condition is waived.

A senior IMF official in Harare, commenting on condition of anonymity, said Zimbabwe does not qualify because of the arrears to WB, African Development, European Investment Bank and bilateral creditors.

“This is as far as traditional channels are concerned.

“We are looking if there are other ways/other funds, but it’s not promising,” the official said.

There, however, already have been futile efforts from some quarters to politicise the relief issue as evidence that Zimbabwe continues to be overlooked by the global community over political reasons such as the basis on which the nearly two decades long illegal western sanctions are founded.

Commenting on claims US had blocked IMF from giving Harare a part of the relief grant, the official said: “Zimbabwe was being blocked at the bilateral level where Washington will not allow a restructuring of an unspecified debt owed by Zimbabwe.”

The latest relief package has been extended from the IMF’s revamped Catastrophe Containment and Relief Trust (CCRT), as part of the Fund’s response to help address the impact of the Covid-19 pandemic on members owing the IMF.

“This provides grants to our poorest and most vulnerable members to cover their IMF debt obligations for an initial phase over the next six months and will help them channel more of their scarce financial resources towards vital emergency medical and other relief efforts.

“The CCRT can currently provide about US$500 million in grant-based debt service relief, including the recent US$185 million pledge by the UK and US$100 million provided by Japan as immediately available resources.

“Others, including China and the Netherlands, are stepping forward with important contributions,” she said in a press statement released yesterday.

In fact, Zimbabwe saw the removal of remedial measures applied to it by IMF because of overdue financial obligations to the Poverty Reduction and Growth Trust (PRGT), effective November 14, 2016, after clearing its outstanding arrears.

These measures included declaration of non-cooperation with the IMF, the suspension of technical assistance to the country and exclusion from participating in most IMF funding programmes.

On October 20, 2016, Zimbabwe fully settled
its overdue financial obligations to the Poverty Reduction and Growth Trust (PRGT) using its special drawing right  (SDR), equivalent of liquid funding, holdings.

The country had been in continuous arrears to the PRGT since February 2001, before the Government started making regular monthly payments of US$0,15 million each year since 2013.

In February 2015, the IMF established a Catastrophe Containment and Relief (CCR) Trust, transformed Post-Catastrophe Relief Trust, to expand the scope of its global relief efforts during disaster periods.

This allows the Fund to provide grants for debt relief for the poorest and most vulnerable countries that are hit by catastrophic natural disasters or public health disasters.

The relief on debt service payments frees up additional resources to meet exceptional balance of payments needs created by the disaster and for containment and recovery efforts.

The new trust complements donor financing and the Fund’s concessional lending through the Poverty Reduction and Growth Trust (PRGT).

Assistance through the CCR Trust is currently available to low-income countries eligible for concessional borrowing through the PRGT and which also have either a per capita income below the IDA Operational Cutoff (currently US$1,215) or, for small states with a population below 1,5 million and a per capita income below twice the IDA Cutoff (currently US$2 430).

The CCR Trust has two windows namely post-Catastrophe and Containment.

Eligible low-income countries that are hit by public health disasters as defined the global fund would receive up-front IMF grants to immediately pay off their upcoming debt service to the IMF on eligible debt.

The amount of grant support is capped at 20 percent of a country’s approved borrowing quota.

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