AfDB commends Zimbabwe's debt clearance plan

THE African Development Bank (AfDB) says the International Monetary Fund's (IMF) supervised economic reform was indicative of the significant improvement in Zimbabwe's cooperation on economic policies and its commitment to address its arrear problems.

In June, IMF approved a Staff Monitored Programme (SMP) on Zimbabwe which runs up to December.

An SMP is an informal agreement between country authorities and the Fund's staff to monitor the implementation of the authorities' economic programme.

SMPs do not entail financial assistance or endorsement by the IMF Executive Board.

This is Zimbabwe's first IMF agreement in more than a decade.

"Implementation of the SMP should help establish a track record of sound policies and is an important stepping-stone towards arrears clearance and an IMF-supported debt relief programme," AfDB said in a latest report on Zimbabwe.

"Debt relief should help free resources from debt service to support the underfunded public sector investment programme."

The SMP focusses on putting public finances on a sustainable course, while protecting infrastructure investment and priority social spending, strengthening public financial management, increasing diamond revenue transparency, reducing financial sector vulnerabilities, and restructuring the central bank.

The SMP is supposed to end in December but is running behind schedule, as the country was engrossed in the just-ended elections for the past three months.

This means that some of the targets Zimbabwe promised to achieve won't be met.

For instance, government told IMF that Harare would issue a Statutory Instrument containing a clear formula for the calculation and remittance of any dividends from diamond producers it has shareholding in by the end of June.

"This [establishing formula for calculating] is an important step towards ensuring that all diamond revenue is remitted to Treasury, in keeping with government's commitment under the Diamond Policy.

In addition, all rough diamonds produced shall be sold through a government-appointed agent," Zimbabwe told the multilateral finance institution.

AfDB said the SMP was key to "unlocking new finance to complement the low fiscal revenues in support of growth enhancing investments".

Zimbabwe has been unable to get lines of credit from multilateral financial institutions due to the country's external debt of over US$10,7 billion.

Among Zimbabwe's creditors are the World Bank (US$976,45 million), IMF (US$127,4 million), European Investment Bank (US$244 million) and US$587 million owed to AfDB.

As a result of the huge debt overhang, Zimbabwe has also been unable to tap into the international financial markets awash with cheap money.

African countries such as Zambia and Rwanda have raised money from international markets to finance infrastructure projects.

Last year, Zambia went to the international markets to raise US$500 million in its debut euro-bond. It was oversubscribed and Zambia had to raise US$750 million.

Rwanda went to the international markets in search of money for infrastructure upgrade and raised US$400 million in its 10-year bond. Bids for the bond totalled over US$3 billion.