Zimbabwe’s quest to clear its debt overhang got a major boost this week after Africa Development Bank President Dr Akinwumi Adesina officially agreed to lead the country’s debt clearance roadmap.
Dr Adesina flew into the country early this week and announced that he had accepted the request by President Mnangagwa to “champion” Zimbabwe’s debt and arrears resolution strategy.
This comes amid realisation that for the country’s arrears clearance, debt relief and restructuring strategy to succeed, Zimbabwe will need strategic partners and champions among the international community.
Zimbabwe is in debt distress. Official figures put the Southern Africa country’s public and publicly guaranteed (PPG) external debt at US$14,4 billion, as at the end of December 2021.
Independent analysts use an even higher figure of US$20 billion.
Of the officially recognised debt, more than US$6, 6 billion was in arrears as at end December 2021.
Another US$1,5 billion also fell due this year and the debt laden country is not in a position to service the ever ballooning debt.
The most it has been doing is to make token payments to the global lenders as a sign of its commitment to the engagement and re-engagement process with the international community.
The Government, in March 2021, resumed quarterly token payments to the Multilateral development banks (MDBs), the World Bank Group (US$ 1 million), the African Development Bank Group (US$500 000) and the European Investment Bank (US$100 000).
The Government also started making quarterly token payments amounting to US$100 000 to each of the 16 Paris Club bilateral creditors in September 2021.
Treasury’s Arrears Clearance, Debt Relief and Restructuring Strategy (ACDRR Strategy) document released in April this year described the debt overhang as a serious impediment to the country’s “socio-economic development and transformation agenda”.
However, as has been the case before, a good debt clearance strategy does not guarantee success.
In 2016, Zimbabwe came up with a widely accepted Lima Plan that was spearheaded by then Finance and Economic Development Minister Patrick Chinamasa, but nothing tangible materialised.
Following the coming in of the new dispensation, incumbent Finance and Economic Development Minister Professor Mthuli Ncube took it upon himself to explore strategies to clear the debt.
Having worked at the African Development Bank, Professor Ncube knows the terrain and how to navigate it. His chances of finally nailing down the debt clearance roadmap looked so bright.
In an effort to have the arrears cleared Minister Ncube has held several meetings with all global lenders but three years down the line, there has been no real movement towards debt clearance. The Lima Plan has since been abandoned.
Zimbabwe continues to be sidelined by global financiers, even during its most vulnerable time.
During the peak of the Covid-19 pandemic the World Bank Group deployed a record US$157 billion to help developing countries fight the pandemic’s health, economic, and social impacts. Zimbabwe, partly because of its debt arrears was left in the cold, to fight it out alone.
A month or so ago, the World Bank announced another US$2,3 billion facility meant to help countries in Eastern and Southern Africa increase resilience of the region’s food systems and ability to tackle growing food and nutrition insecurity.
Zimbabwe was a perfect candidate having experienced most, if not all the tragedies covered by the facility.
But once again, its debt position with the global lenders was a stumbling block. This is where Dr Adesina comes in.
The African Development Bank, which he leads, is very much aligned with other lenders such as the IMF and the World Bank.
When the World Bank says it cannot lend to Zimbabwe because of its arrears, it counts debts owed to the AfDB among its major reasons.
The debt relief and arrear clearance plan will also have to be consistent with the ‘pari-pasu’ treatment of IFIs i.e., clearance of arrears to the World Bank Group and AfDB.
Public and publicly guaranteed external debt owed to the multilateral creditors, as at end December 2021, amounted to US$2,7 billion, of which US$1,5 billion is owed to the World Bank Group, US$711 million to the African Development Bank, US$358 million to the European Investment Bank, and US$66 million to other multilateral creditors.
The country will have to come up with one comprehensive plan to deal with all debts.
What are the options for Zimbabwe?
While Dr Adesina is coming in to champion the debt and arrears clearance roadmap, Zimbabwe already has several options available to clear its debts.
The first option that Dr Adesina is set to explore is for Zimbabwe to go through the Highly Indebted Poor Country (HIPC) route.
HIPC was designed to ensure that the poorest countries in the world are not overwhelmed by unmanageable or unsustainable debt burdens. HIPC provides maximum debt relief for beneficiary countries.
Qualifying for HIPC is however not automatic. According to the Ministry of Finance and Economic Development there are periods in which countries are considered to be part of the HIPC initiative.
Currently, HIPC is made up of a group of 39 developing countries with high levels of poverty and debt overhang, which are eligible for special assistance from the International Monetary Fund (IMF) and the World Bank. Zimbabwe is not part of these countries.
As part of its ACDRR Strategy Zimbabwe has expressed its willingness to be considered.
“If the window for the HIPC Initiative is availed, Zimbabwe is keen to participate in the HIPC initiative process in order to benefit from maximum debt relief,” reads the ACDRR Strategy in part.
However, for Zimbabwe to qualify, it would require a modification or exception granted by the International Development Association (IDA) executive board, to the World Bank HIPC initiative eligibility criteria, for the reclassification of Zimbabwe as an IDA-only country.
Conferring IDA-only status to a country is a signal to donors and creditors that a country faces special development challenges and should be considered in a different light from other developing countries. In practice, the international aid system allocates extra benefits to countries deemed IDA-only and denies some of those benefits to countries classified otherwise.
For Zimbabwe to be conferred with an IDA-only status, it will also require IMF’s board grandfathering of Zimbabwe to the HIPC initiative.
If the HIPC initiative is not available to Zimbabwe the second option is multi-component plan that entails a combination of using Zimbabwe’s own resources, and bridge concessional loans from bilateral development partners who are willing to channel their excess resources to support Zimbabwe’s ACDRR Strategy.
The process includes component 1 where Zimbabwe will clear its US$1,4 billion debt to the World Bank Group; component 2 where it clears the US$681 million owed to AfDB (US$681 million); and component 3 where it clears the US$344 million owed to the European Investment Bank.
This will be followed by bilateral creditors’ arrears clearance, debt relief and restructuring first to the Paris Club Creditors and lastly non-Paris Club Creditors.
The plan will also include rescheduling of outstanding and disbursed debt falling due after arrears clearance as well as negotiating for rescheduling with bilateral creditors (Paris Club and Non-Paris Club).
The strategy will also include comprehensive negotiations for restructuring of all the bilateral debt outstanding and disbursed (DOD) (US$1,5 billion) to include grace periods and longer-term maturities to avoid accumulation of arrears after the implementation of an arrears clearance strategy.
However, the clearance of arrears to the World Bank Group and the AfDB using some of Zimbabwe’s own resources, including part of its allocated SDRs, is based on firm expectation that new resources will be disbursed by the International Financial Institutions and the international community.
Dr Adesina has his work cut out Zimbabwe acknowledges the need to continue implementing a comprehensive and credible economic Reform Program guided by the NDS1.
This Reform Program will need the support of the IMF, the World Bank Group and the AfDB.
However, while the ACDRR strategy seems comprehensive and well thought out, Dr Adesina still will not have it easy as there are some countries opposed to Zimbabwe having its debts cleared or restructured.
The United States of America has in the past vowed that it would not support any debt resolution plan by Zimbabwe without reforms demanded in the Zimbabwe Democracy and Economic Amendment Act (Zidera).
In 2019, an American embassy spokesperson Stacy Lomba told a local media house that some of the key conditions the United States requires Zimbabwe to satisfy include the restoration of the rule of law; free and fair elections; equitable, legal, and transparent land reform; and military and national police subordinate to civil government. There is however no clear definition or set standards that defines, for example, what entails an equitable, legal, and transparent land reform.
As a result, with or without Dr Adesina, ACDRR Strategy critically hinges on strengthening and continuing with the reform programme, stepping up re-engagement with all creditors including the United States to get its buy in and support. – Business Weekly