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Zimbabwe makes token payments to clear foreign debt

by Staff reporter
30 Jul 2021 at 07:26hrs | Views
ZIMBABWE has started making token payments to service the country's foreign debt with the Treasury channelling about US$17 million in the first quarter of 2021 towards clearing the arrears owed to different creditors.

Finance and Economic Development Minister, Professor Mthuli Ncube revealed this yesterday while presenting his Mid-Term 2021 Budget Review Statement in Parliament. He said the arrears clearance drive was consistent with National Development Strategy (NDS1) blueprint and the Government's Vision 2030.

As at end December 2020, Zimbabwe's total external debt including the Reserve Bank of Zimbabwe (RBZ) external guaranteed debt amounted to US$10,5 billion, representing 71,2 percent of the country's Gross Domestic Product, said the minister.

"Government has been making debt service payments on active portfolios so as to unlock new financing and trigger disbursements to ongoing projects," said Prof Ncube.

"During the first quarter of 2021, debt service payments amounting to US$17,04 million were made towards token payments (US$1,6 million), other multilateral creditors (US$4,11 million) and bilateral Non-Paris Club (US$11,33 million)."

The minister explained that the Treasury, in March 2021, resumed quarterly token payments to the multilateral development banks (MDBs), the World Bank Group (US$1 million), the African Development Bank Group (US$500 000) and the European Investment Bank (US$100 000). He said the token payments were part of the re-engagement process with the international community in line with the Arrears Clearance and Debt Relief Strategy, which is critical in regaining access to concessional financing from both multilateral and bilateral development partners.

"Accumulation of external debt arrears remains a major challenge to the country, making up over US$6,5 billion (77 percent) of total external debt," said Prof Ncube.

"One of the major pillars of the 2022 National Budget is the engagement and re-engagement process. Ongoing engagements with critical stakeholders should result in the development of a comprehensive programme that addresses key areas of concern covering both political and economic."

Prof Ncube said Public and Publicly Guaranteed external debt owed to the multilateral creditors, as at end December 2020, amounted to US$2,67 billion, of which US$1,53 billion is owed to the World Bank Group, US$729 million to the African Development Bank, US$356 million to the European Investment Bank, and US$68 million to other multilateral creditors such as International Fund for Agricultural Development (IFAD), Arab Bank for Economic Development in Africa (BADEA) and OPEC Fund for International Development (OFID). On the other hand, bilateral external debt amounted to US$5,75 billion, with US$3,79 billion owed to Paris Club bilateral creditors and US$1,67 billion to Non-Paris Club bilateral creditors.

The Government has formulated an Arrears Clearance and Debt Relief Strategy to assist the country regain access to new concessional financing from both multilateral and bilateral development partners. This is critical to the achievement of NDS1 and Vision 2030 goals. Bilateral creditors debt relief and arrears clearance. As such, Prof Ncube said access to external financing remains constrained due to the continued accumulation of external debt arrears hence domestic financial markets remain the major source of budget financing for Treasury.

This has seen domestic debt, as at end April 2021 amounting to $20,9 billion. These include Treasury Bonds ($13,5 billion), Treasury Bills ($4,8 billion) and Domestic Arrears at $2,4 billion.

Following the signing of the Global Compensation Deed in July 2020 providing for the compensation of farm improvements to former white commercial farm owners, Treasury now has an obligation to raise US$3,5 billion. This has seen the Government engaging a financial advisor Newstate Partners UK to assist in mobilisation the fund through models that do not compromise the fiscal, debt management and overall growth objectives of the economy.

Meanwhile, the Government has said it will continue making interim relief payments to the farmers, while mobilising the resources for the full compensation.

A total of $300 million was allocated in the 2020 National Budget, of which, approximately $200 million was disbursed in 2020. In the 2021 National Budget, $2 billion was allocated for the interim relief payments.

Source - the herald

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