Mthuli Ncube rules out de-dollarisation

Finance Minister Mthuli Ncube says that Zimbabwe is beginning to engage multilateral creditors, with a view of clearing its US$1.8 billion arrears, which will see the country unlock fresh funding to aid its economic growth efforts. Zimbabwe owes US$1.2 billion to the World Bank and US$600 million to the African Bank.
 
Ncube said the clearance plan had been affected by the coronavirus pandemic, which had seen resources being deployed in order to control and curtail the spread of the virus. As a result monthly token payments to the creditors had been suspended. "We were faced with a choice. Do we look for US$1 billion to pay off the World Bank or we look for funding for the productive sector and for social safety nets? We settled for the latter. But now we are beginning to engage again."
 
Zimbabwe missed out on the US$250 billion the International Monetary Fund made available to its member countries for coronavirus relief funds.  The amount is a quarter of the IMF's $1 trillion lending capacity.
 
Ncube said the Government would pursue two options; bridge financing from the multilateral creditors and a commercial transaction. If the country is to pursue bridge financing, then it would have to complete a Staff Monitored Programme as a prerequisite. The SMP was suspended with a view to ‘recalibrate it' after Zimbabwe overperformed on its last programme.
 
"But then again the question to ask is if Zimbabwe needs to be on SMP? We actually do not think it's necessary. We have shown that we are able to have discipline on our own"
 
Ncube said that conversations with commercial funders had begun and depending on the terms offered, this would be the preferred option. Initially Zimbabwe had arranged a syndicated facility with Afreximbank, which also included VTB Bank of Russia and Standard Chartered plc but the structure was seen as unfavourable to the country.
 
Token payments, which used to be around US$150 000 a month, would soon resume.
 
Once Government clears the debt arrears to the WB and AfDB, focus will shift to bilateral debts with the Paris and non-Paris Club members.
 
There are however growing concerns about the country's external debt, made worse by a new obligation to pay farmers US$3.5 billion. Ncube however said that the external debt was under control. Part of the US$3.5 billion would come from internal sources, while as previously reported the government would issue a 30-year instrument.
 
When quizzed about the Reserve Bank of Zimbabwe's foreign liabilities, which had grown to US$4.8 billion by June, Ncube said the amount, which was just an accounting entry, related to legacy debt from the currency reforms and structured debt, which is structured around platinum and gold. He said Treasury had strengthened the debt management office, which evaluates each debt line by line. "The team checks on the interest rate we are paying on all debts and the structure. We are also working with the IMF on debt sustainability analysis. We also go to Parliament to provide updates and to approve what the constitution mandates them to approve."
 
Ncube was overall bullish about economic growth saying that the economy "will surprise many" as there are green shoots of development across the country. Part of the success story was the successful introduction of the Dutch Auction System on June 23, which had brought about exchange rate stability and had improved price discovery. "The premium on the parallel and official exchange rates has significantly narrowed from a peak of 300% on June 22, 2020 to the current 26.4%.
 
He cleverly ruled out de-dollarisation saying that the term does not exist. "I have written 14 books in economics and there is no economic term called de-dollarisation. We must be pragmatic. The questions would be; is the local currency being accepted, is it stable and is it being used for transactions. We want people to focus on stability"
 
RBZ Deputy governor Kupikile Mlambo, in response to a query on the manipulation of the rate by companies who are on the top tier priority list, said that the priority list cannot be abandoned as it ensured the provision of imported essentials.
 
He said at present, 51% of the auction funds are coming from exporters retention while the remainder (49%) is coming from other sources including Government and RBZ.