International Finance Institutions meet to discuss Zim debt resolution

The Zimbabwean government on Friday met with the country's creditors in Tunis, Tunisia, as it steps up effort to retire its $6 billion debt and unlock fresh resources to support the country's economic growth projects.

Of the more than $6 billion debt, an estimated $3,7 billion is in arrears.

The African Development Bank (AfDB) said in a statement last week the Friends of Zimbabwe Roundtable, which seems to be informed by the Government's Zimbabwe: Accelerated Re-engagement Economic Programme (ZAREP) for the next 18 months to 24 months, "will focus on the prospects of dealing with the country's external debt arrears".

Key International Finance Institutions (IFIs) that attended the Roundtable include the International Monetary Fund (IMF), the World Bank, the Paris Club and the European Investment Bank.

There were also representatives from countries such as Australia, Belgium, Canada, the Czech Republic, Denmark, France, Finland, Germany, Italy, Japan, the Netherlands,

Norway, Sweden, the United Kingdom and the United States.

United Nations Development Programme also participated.

The current re-engagement effort comes after the country unveiled the Zimbabwe: Accelerated Arrears Clearance, Debt and Development Strategy (ZAADDS) â€" a hybrid debt resolution strategy which includes the adoption of the traditional debt resolution initiatives, combined with leveraging of the country's natural resources to achieve sustainable economic development.

Government is optimistic that by clearing its arrears using the procedures that have been activated by creditors, it will be able to unlock fresh financial capital that is needed particularly in key infrastructure development projects.

Critically, Zimbabwe, which has since acknowledged that it cannot pay off the arrears using its own resources, will seek concessionary bridging loans or grants from co-operating partners to retire its obligations.

Details from the ZAADDS indicate that arrears owed to the IMF √ɬ¢√¢‚Äö¬¨"  through the Extended Credit Facility (ECF) √ɬ¢√¢‚Äö¬¨" amounting to $140 million will be settled through a concessionary bridging loan or grant, enabling the country to "unlock new financing arrangements from the IMF".

However, for the $807 million owed to the World Bank, the country has embarked on a dual-pronged strategy where it will use the country's regular allocation from the

International Development Agency (IDA) â€" an arm of the WB â€" to clear the arrears.
However, this only covers 15 percent of the debt.

Ideally, the country expects to convince the Bank to provide an exceptional Arrears Clearance Grant under which a bridging loan is provided by development partners and repaid with proceeds of IDA Development Policy Co-operation.

Encouragingly, the country meets the criteria to be considered under these exceptional mechanisms.

"In addition, the country meets the criteria to be considered under the exceptional arrears clearance mechanisms for IDA-only countries, given its GNI (Gross National Income) per capita of $340, which is far below the IDA cut-off of $1 095 at end 2008.

"Already, under the 15th IDA Replenishment, shareholders agreed to earmark resources to finance arrears clearance operations for eligible countries, which include Zimbabwe," reads part of the ZAADDS.

Government, it has been learnt, will also be approaching the AfDB, which it owes $510 million, to tap into the Fragile States Facility (FSF) that only caters for only two thirds of

the debt, implying that the country would have to pay $110 million from its own resources.

Also, Zimbabwe qualifies for arrears clearance support under the AfDB Group ADF-12 Replenishment programme from 2011 to 2013.

Through the programme, $528 million has been set aside for eligible countries, which include Zimbabwe.

The country will, however, have to engage the financier to extend the deadline beyond September 2012.

Perhaps the most daunting task will be to clear the $2,1 billion in arrears that is owed to the Paris Club, an informal group of creditor countries.

It is believed that debt relief from this Club will be sought through the application of the Naple Terms, which, in essence, entails consolidating existing arrears, rescheduling new payments over three years and applying a 67 percent reduction in payment obligations in net present value terms.

The balance will then be rescheduled over several years.

It is understood that already the country qualifies under Naples Terms conditions as its per capital income of $340 is below the Naples Terms per capita income threshold of $500.

Zimbabwe's external debt, which is forecast to balloon to $8 billion, has imposed a premium to the country's economic recovery.

Presently, industry is finding it difficult to access cheap lines of credit from international financiers due to the country's unfavourable credit rating.

This in turn has precipitated a biting liquidity crunch and made local credit very expensive.

On the overall, this has stalled recovery and growth in the economy.

Before the fallout of the Government and the multilateral financial institutions that are controlled by the West, the private sector used to access funding from the International Finance Corporation (IFC), which is part of the World Bank Group.

Liquidity challenges have been further compounded by lack of domestic savings that could be used to support local economic activities.

Crucial Government projects that require huge capital commitments have also suffered as the country is currently unable to unlock funds from the multilateral financiers.

Though economic performance has improved since 2009, a huge chunk of revenues generated by the fiscus is mainly being used to support recurrent expenditure, especially wages, a development that has crowded out capital projects.