G7 nations ready to bail out Harare

Zimbabwean Finance Minister Mthuli Ncube looks on during the swearing in of new cabinet ministers at State House in Harare, Zimbabwe, September 10, 2018. REUTERS/Philimon Bulawayo

Zimbabwe is expected to secure funding assistance from bilateral partners within the Group of 7 (G7) wealthiest countries to clear its $2,1 billion arrears to the African Development Bank (AfDB) and World Bank, as it seeks to regain debt sustainability in order to re-open lines of credit from multi-lateral lenders.

The Group of Seven (G7) is an informal gathering of seven wealthiest countries in the world, which meet each year to discuss topical issues of the day, including economies. It comprises Canada, France, Germany, Italy, Japan, United Kingdom and United States while the European Union also has representation.

G7 nations represent more than 62 percent of the global net wealth — amounting to a whopping $280 trillion.

Expected help from G7 comes amid admission in key circles of Government that Zimbabwe requires unhindered access to affordable/cheaper external lines of credit before it can consider liberalisation of foreign exchange systems, which highly placed sources contend, could invite serious hardships on the populace.

It has also emerged that the country has toyed with the possibility of seeking debt relief under the Highly Indebted Poor Countries (HIPC) initiative — spearheaded by IMF and World Bank to provide debt relief to highly indebted poor countries — although the claim has not been officially confirmed by Government.

Zimbabwe’s total debt stands at $16,9 billion, while the country’s external debt only amounts to $7,4 billion with $5,6 billion of the debt being arrears. The arrears mean Harare cannot get fresh external lines of credit.

Government sources say Finance and Economic Development Minister Mthuli Ncube and Reserve Bank governor Dr John Mangudya, sounded partners on the possibility of debt relief under the HIPC initiative at the International Monetary Fund (IMF) and World Bank annual meetings held in Bali Indonesia over a ago.

At the Bali meetings, Zimbabwe had an opportunity to present its roadmap regarding planned economic reforms and settlement of its arrears to multilateral and bilateral lenders, principally AfDB, World Bank and Paris Club. In a statement on his return Minister Mthuli said Harare’s plan got strong backing from partners.

G7 partners ready to support Zim

Diplomatic sources, however, told Business Weekly this week that Zimbabwe was in line to get help from G7 to clear its AfDB/WB arrears, which the southern African nation believes will unlock access to affordable long term capital, as debt restricted access to global funding continues to suffocate the country’s economy.

This publication also has it on good authority that Harare has requested to clear its arrears to AfDB first, amounting to just over $600 million and three months later settle $1,3 billion arrears to the World Bank. Zimbabwe also has arrears amounting to $308 million, which is owed to the European Investment Bank.

Ordinarily, a borrower may not be at freedom to clear dues to one/some of the global lenders and leave out others.

Zimbabwe has not received external lines of credit from multi-lateral and bilateral lenders since the turn of the millennium after failing to service its loans.

In a bid to re-establish funding support from global lenders, the country last year settled all arrears to the IMF and seeks to clear outstanding dues to other lenders.

“Zimbabwe will get the money from bilateral partners. In fact, there already is commitment of support from the G7 partners to provide the funding the country requires to clear arrears to AfDB, World Bank and Paris Club, which are keen to facilitate the country’s debt sustainability process,” a highly placed source said.

The southern African nation owes about $2,8 billion to the Paris Club. The Paris Club is an informal group of official creditors who try to find sustainable and co-ordinated solutions to payment problems that debtor countries experience.

As countries with major debts undertake reforms to restore and/or stabilise their financial and macro-economic situations, creditors at the Paris Club provide a debt treatment that is appropriate to their situation.

“The G7 partners have agreed to help the country’s debt sustainability process because if you look closely, they are related to Zimbabwe’s foreign creditors, which it owes and when the arrears have been paid, the multi-lateral and bilateral lenders will release new money,” the source said.

Contacted for comment Reserve Bank Governor John Mangudya declined to discuss the identity of institutions or reveal sources from which the country will obtain save for the fact that Government would seek help from external partners.

He was non-committal when asked if the country will get help specifically from the G7.

“The country is pursuing an international re-engagement programme to re-open access to international lines of credit to ensure access to cheaper long term capital. What also needs to be done is for the country to increase production and pursue other interventions to bring in the much needed foreign capital,”  Mangudya said.

Zimbabwe has gone through nearly two decades of economic slowdown, which has decimated industrial, mining and agricultural production while foreign direct investment also plummeted in the decade to 2008 and only appeared to pick up post dollarisation, but still average a measly $400 million annually.

Zim not ready for liberal foreign exchange system

But as the country continues to battle the negative impact of foreign currency shortages, compounded by growing aggregate demand driven by excessive off budget public expenditure (fiscal imbalances), there has been suggestions from some quarters that Government should liberalise the foreign exchange system.

Harare-based economist Blessed Murenga said what is required is  a gradual process that takes into account the need to build reserves, which entails completion of the re-engagement process to reopen access to long term financing, growing production which consequently leads to increased export proceeds.