Zimbabwe, one of Africa’s leading coal and gold producers is running in excess of USD 10 billion in external debt despite an inclusive government of Robert Mugabe and Morgan Tsvangirai runing the treasury.
According to reports, Zimbabwean government has failed to control the country's runaway external debt with latest figures indicating that the external debt stock had breached the USD 10 billion mark.
Over half of that debt is already delinquent, vindicating an International Monetary Fund statement in 2009 that Zimbabwe would remain mired in debt distress and large financing gaps even if policies were improved.
According to the recently launched Medium Term Plan an economic blueprint meant to salvage the country's frail economy from a quagmire, Zimbabwe's external debt stock has soared to USD 8.8 billion with arrears running into USD 6.6 billion as at March 31st 2011. This indicates that the country's external debt stock had swelled from an estimated USD 7.1 billion by end 2009.
Zimbabwe's external debt has continued to grow mainly as a consequence of new payment arrears and interest and penalty charges on existing payment arrears. The MTP document indicated that government would lobby the international community for support in tackling the country's ballooning external debt crisis.
The government's economic blueprint said that the engagement will entail a strategy that will yield the needed debt relief, create opportunities for unlocking requisite resources for economic growth and development and ensure that the country's expenditure priorities, in particular social expenditure are not compromised. It indicated that government would embark on a holistic and comprehensive debt and arrears strategy which normalizes Zimbabwe's relations with its main creditors in order to send positive signals to domestic and foreign investors.
Mr Tendai Biti finance minister of Zambia had earlier on at the end of 2009 announced that Zimbabwe would take steps towards seeking highly indebted poor country status to have its external debt then at USD 6 billion cancelled to help spur economic growth. The African Development Bank to which Zimbabwe is also indebted, had been appointed to draft a debt relief plan. While critics agreed that Zimbabwe required substantial financial support to turn its once ailing economy around, civic society groups suggested the decision to seek HIPC status could be costly to the country in the long term.
Zimbabwe's debt levels were unsustainable but getting on the HIPC path could make it worse. Experts had predicted a national debt stock of USD 13 billion by 2013 due to interest accumulation on arrears and principle debt alone. A debt expert had also indicated that Zimbabwe had to tread carefully since the HIPC vehicle could in fact worsen the country's indebtedness.
The expert said that under HIPC, debt can actually increase. The HIPC process is said to be arduous and involves a range of sometimes controversial policy demands by international creditors. Analysts have indicated that the average time for completion of the program has been six to seven years.
The European Network for Debt and Development said that Zimbabwe will also have to meet its external debt service obligations as a supposed sign of goodwill once it starts the initiative which will mean that, ironically, there will be a significant increase in the external debt service burden over the short term. Interestingly, donors have pressed Zimbabwe to seek the HIPC status to benefit from debt cancellation and new financial support.
The Financial Gazette understands that government has now agreed on a debt management plan and has approved a Zimbabwe Accelerated Arrears, Debt and Development Strategy whose main objective is to facilitate re engagement of all creditors and the international community on arrears clearance, a comprehensive debt relief program and mobilizing new financing.
ZAADS was approved in November 2010. According to data from the Ministry of Finance, compiled before the launch of the MTP last week, indicates that as part of the implementation of ZAADS significant progress had already been made in setting up and operationalizing the Zimbabwe Aid and Debt Management Office which will coordinate the implementation of the debt strategy.
The Ministry of Finance said that the ZADMO is in the process of validating public and publicly guaranteed debt database with the assistance from the Macro economic and Financial Management Institute of Eastern and Southern Africa. MEFMI is a regionally owned institute with 13 member countries namely Angola, Botswana, Kenya, Lesotho, Malawi, Mozambique, Namibia, Rwanda, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe.
MEFMI seeks to contribute towards sustainable poverty reduction process and improvement of governance in the key areas of macro economic and financial management in the public sector. Apparently, the level of Zimbabwe's external indebtedness is higher than the country's gross domestic product estimated at USD 6 billion.
An IMF team that visited Zimbabwe noted that despite a favourable external environment, the external position remained precarious. The IMF has said to facilitate resuscitation of funding and possible debt relief, Zimbabwe was strongly encouraged to improve their co-operation with the Fund on policies and payments.
Debt relief, treatment or rescheduling is normally negotiated through the Paris Club, an informal group of official creditors, mostly industrialized countries that seek solutions for debtor nations facing payment difficulties. The Paris Club and the IMF have extensive contact, since the Paris Club normally requires countries to have an active IMF supported program in order to qualify for a rescheduling agreement.
(Filed by Mr Kapembwa Sinkamba SteelGuru Correspondent Zambia)
