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Zimbabwe's quest for debt forgiveness thrown out

by Staff reporter
28 Oct 2018 at 21:18hrs | Views
Zimbabwe's quest to pursue the Highly Indebted Poor Countries (HIPC) debt forgiveness option has been thrown into disarray amid resistance from the United States and government's decision to rebase the Gross Domestic Product size.

The country is saddled with a $16,9 billion debt, with external debt accounting for approximately $7,4 billion. Out of this, approximately $5,6 billion is in arrears.

Already Zimbabwe has settled its International Monetary Fund arrears of US$107,9 million in November 2016.

What is now outstanding is the clearance of the outstanding arrears to the World Bank of $1,3 billion, African Development Bank, $680 million and the European Investment Bank of $308 million.

Clearance of the arrears is expected to open fresh lines of credit with international financial institutions which stopped extending support to Zimbabwe in 1999 after the country defaulted on its payment.

Speaking on his return from Bali, Indonesia, where heads of multi-lateral institutions have been meeting, Finance minister Mthuli Ncube said government is considering the HIPC option to address the debt issue.

However, it has emerged that the United States Assistant Secretary and Middle East in the Middle East in the Treasury, Erick Meyer, told Finance minister Mthuli Ncube in Bali, Indonesia on the sidelines of the World Bank/International Monetary Fund annual meetings that Zimbabwe is ineligible for HIPC.

"On government's plans to utilise the AfDB Pillar II resources to clear Zimbabwe's arrears with the AfDB, Meyer indicated that the US is not supportive of using the resources because we do not qualify to be a HIPC country, and that such resources are only targeted for HIPC countries," a source from an international financial institution said.

"Meyer reiterated the United States' government continued commitment to support Zimbabwe's Arrears Clearance Strategy, on condition that Government uses its own resources to clear the arrears."

Early this month Ncube said government had increased the nominal size of the economy by more than 40 percent. This again resulted in Zimbabwe not being considered for HIPC.

In 2016 the AfDB agreed to ring-fence Transition Support Facility Pillar II resources for arrears clearance of Somalia, Sudan and Zimbabwe on a first come, first served basis. To get new funding from AfDB, Zimbabwe—classified as one of the vulnerable economies on the continent together with the other two African countries needs to clear its arrears first before December 2020 when the funds are still available.

What is HIPC?
The World Bank, the International Monetary Fund (IMF) and other multilateral, bilateral and commercial creditors began the Heavily Indebted Poor Country (HIPC) Initiative in 1996. The structured programme was designed to ensure that the poorest countries in the world are not overwhelmed by unmanageable or unsustainable debt burdens. It reduces the debt of countries meeting strict criteria. As of the most recent annual report, the HIPC and related Multilateral Debt Relief Initiative (MDRI) programmes have relieved 36 participating countries of $99 billion in debt.

A comprehensive review of the programme in 1999 led to enhancements, including the adjustment downward of the debtburden thresholds that enabled a broader group of countries to qualify for debt relief. In addition, a number of creditors, including the main multilaterals, started to provide earlier assistance to qualifying countries in the form of interim relief at decision point. Finally, the "floating completion point" was introduced, providing incentives to speed up reforms and increase countries' ownership.

Thirty-nine countries are currently eligible for HIPC debt relief. Countries eligible for assistance through HIPC pass through two milestones. The first is the "decision point," at which the World Bank and the IMF formally determine whether the country is eligible for debt relief. Countries at this point have met stringent qualifications, including income thresholds. The international community commits to a level of debt relief, and the country may begin receiving debt relief at this point.

The second milestone is the "completion point," at which countries receive the balance of the debt relief that the international community committed to at the decision point. This is when they graduate from the programme. To reach this point, the countries must have achieved certain reforms and taken concrete steps to reduce poverty.

To date, 36 countries – 30 of them in Africa – have received the full amount of debt-relief for which they were eligible through HIPC and the MDRI.

Source - businesstimes