Mthuli Ncube's ambitious plans

ZIMBABWE'S Finance minister Mthuli Ncube has ambitious plans of floating a Eurobond on the international debt market but he will have to put them on hold until he hammers out an elaborate schedule to pay off arrears owed to international financial institutions.

Ncube, who is on a charm offensive to win international support as well as investment and funding for the broke Harare government, has the unenviable task of convincing lenders that Zimbabwe will embrace reforms and make good on its debt and arrears to international lenders.

Ncube told an investment conference on the sidelines of the United Nations General Assembly in New York this week that Zimbabwe, which still owes the African Development Bank (AfDB) US$600 million and World Bank US$1,2 billion, would be seeking debt relief.

"We are pursuing a debt relief strategy or restructuring which can allow us to catch up with our arrears and unlock the flow of capital from the rest of the world," he said.
But before the Paris Club and all other bilateral lenders can consider any form of debt relief, Zimbabwe has to pay off its arrears to the two international financial institutions.

Debt relief would see the country risk profile going down and, in turn, attract foreign direct investment into the economy, putting it in a better place to service its obligations.

"We are seized with the arrears issue, we have paid off the IMF and we now need to deal with the AfDB and World Bank. Once we are done then we attack the next batch which is the Paris Club and Bilateral debt of around US$4billion. We will say more when we are in Bali at the IMF and World Bank spring meetings. The roadmap will be clearer as we go but I must say work has already started through the Lima process which has allowed us to focus and narrow our roadmap," said Ncube.

"One day we will be coming back to you for a Eurobond issue we want to get back into the market after a full credit rating from Moody's, Fitch and others."

The debt relief strategy would entail four options - which include using internal revenue inflows, resource-based debt restructuring, Paris Club debt-rescheduling, and the Heavily Indebted Poor Country Initiative (HIPC).

For now the internal revenues strategy is unrealistic, given the parlous state of the country's economy.

The HIPC route, which was once suggested as the most appropriate by the then finance minister Tendai Biti during the government of national unity between 2010 and 2013, faced stiff opposition from former president Robert Mugabe and other Zanu-PF hardliners who saw the approach as demeaning and desperate.

But eight years later with the country facing dire straits - characterised by a pressing liquidity crunch and cash crisis - the HIPC path might be seen as an option by the Mnangagwa administration which has now abandoned most of Mugabe's hardline policies.

To qualify for HIPC, countries must meet certain criteria, commit to poverty reduction through policy changes, and demonstrate a good track record over time.

The IMF and World Bank provide interim debt relief at the initial stage and, when a country meets its commitments, full debt relief is provided.

Currently the 39 countries eligible or potentially eligible for HIPC Initiative assistance, 36 are receiving full debt relief from the IMF and other creditors after reaching their completion points.

Eretria, Somalia and Sudan have been identified as potentially eligible for HIPC but have not yet reached their decision points.

The IMF has already indicated its willingness to support reforms in the form of a Staff Monitored Programme.

The World Bank has also since pledged to give technical support to the debt payment strategy. The option to collateralise minerals will also be on the table, but of concern would be measuring the resource base and agreeing to workable terms.

While Zimbabwe is endowed with vast mineral resources, they remain largely untapped because of limited exploration, making such deposits more speculative than proven and hence difficult to value.