Harambe: ‘Zimbabwe debt resolution will open funding floodgates’ | The Sunday Mail (5/21/23)
THE successful conclusion of discussions on Zimbabwe’s arrears clearance and debt resolution will lay a firm foundation for the lifting of economic sanctions and help to unlock fresh and affordable external long-term funding for the country.
Zimbabwe is working with international and bilateral organisations to clear its external debt, which stood at US$14 billion as of September 2022, as well as pay its obligations to white former commercial farmers through the Global Compensation Deed (GCD) for improvements on farms acquired under the land reform programme.
Under the GCD, signed in 2020, the white former commercial farmers would be paid US$3,5 billion, which is part of Zimbabwe’s total external debt of US$14 billion, owed to various multilateral and bilateral partners, including the African Development Bank (AfDB), the World Bank (WB) and the Paris Club.
To operationalise the debt clearance strategy, President Mnangagwa appointed AfDB president Dr Akinumwi Adesina to champion the country’s arrears clearance and debt resolution process.
Dr Adesina is working together with former Mozambican President Joaquim Chissano, whom President Mnangagwa appointed high-level facilitator for the debt dialogue process between Zimbabwe and the international creditors.
In separate interviews, following the Fourth Structured Dialogue Platform discussions on Zimbabwe’s debt resolution process held in Harare on Monday last week, economic commentators commended the Government for showing the will to resolve the country’s unsustainable debt.
Zimbabwe’s huge debt burden is one of the major issues that have prevented the country from accessing affordable long-term funding from international financiers such as the WB and the International Monetary Fund (IMF).
Economist Professor Gift Mugano said the significance of the dialogue was that Zimbabwe was already engaging creditors at a high level.
“That, on its own, gives hope that there is some kind of goodwill to have a solution, it’s different from a scenario whereby no one is talking to you, where no one is talking, and there is no hope. The second issue is that the bilateral partners, the American and British governments, and also the European Union are participating and they have laid down what must be done …,” he said.
“If we sail through this whole process, Zimbabwe is back to business on the global stage in terms of access to offshore funding, meaning that the country can now attract capital or long-term finance.
“What is very important is for us to be patient and to be pragmatic. I am happy that at a higher level, our President is participating, and this shows political will.”
Under Zimbabwe’s arrears clearance and debt resolution process, three sector-specific working groups have been established to focus on economic reforms; governance; land tenure reforms and compensation under the GCD and bilateral investment promotion and protection agreements.
For over two decades, Zimbabwe has not been able to access the much-needed lines of credit from the international community.
The country has often had to use expensive sources of capital, which would burden taxpayers; or financing mechanisms that, at times, upset the economy.
“If you look at the three conditions raised in the dialogue, there is a reminiscence of ZDERA (Zimbabwe Democracy and Economic Recovery Act). ZDERA is about human rights, land reform and debt, so the compensation deed is dealing with land reform, and the issue of human rights is very clear, and the Constitution is very clear.
“If we address those three elements, it means we have addressed ZDERA and there will be no need for sanctions; they will be lifted automatically,” said Prof Mugano.
Economic commentator Mrs Chipo Warikandwa echoed similar sentiments, saying now that there were discussions around Zimbabwe’s arrears clearance and debt resolution, what was critical was to iron out all the issues that have been put on the table.
“If we successfully and amicably address all the concerns the parties are discussing, certainly, there is no reason for the sanctions not to be lifted. What is also critical is focusing on paying the US$3,5 billion to the white former commercial farmers under the Global Compensation Deed.
“It is also pleasing to note that the AfDB president has hinted that his institution is working on crafting innovative financial instruments to frontload the mobilisation of the US$3,5 billion,” she said.
Zimbabwe National Chamber of Commerce past president Mr Trust Chikohora said so far, Zimbabwe was not receiving balance of payments support and concessionary loan funding from multilateral institutions due to the debt arrears situation.
This, he said, was because such global lenders like the IMF and the WB use a collaborative system known as pari passu, which makes it difficult for any country in arrears with any one of them to access fresh funding.
“If you don’t get funding from those institutions, you also do not get funding from other international funders, even in the private sector.
“So, if we get the funding (from private and non-multilateral institutions), it will be offered at very punitive rates because the fact that we are not getting support from multilateral institutions means Zimbabwe will now have a very high-risk factor and that affects us as a country and it militates against us getting the much-required funding at affordable rates.
“So, it is important that this dialogue, which is ongoing, comes to an end successfully, with all the parties reaching common ground,” he said.
At the Fourth Structured Dialogue Platform discussions, Dr Adesina said he was pleased with the level of progress achieved so far by the parties in trying to find a solution.
Mr Chikohora said the main reason the WB and IMF were giving for not lending to Zimbabwe was based on the soaring debt.
“So, if we clear the arrears and the debt that we have, Zimbabwe should be able to unlock fresh funding from the multilateral institutions. If we are able to restructure that debt and clear those arrears, it will go a long way towards opening up lines of credit and funding for Zimbabwe.
“We know that sanctions are also the real big reason Zimbabwe doesn’t get funding, although the arrears are also used as an excuse. I believe that’s why people like former President Chissano are involved.
“People like the former President Chissano bring in the political side as a respected statesman to also unlock the doors as far as the sanctions are concerned so that we tackle both issues (arrears and sanctions),” he said.