World Bank rules out Zim bailout

HARARE - The World Bank has insisted that it will not extend any financial assistance to Zimbabwe under the Highly Indebted Poor Country (HIPC) facility unless the country clears its arrears in excess of $6,1 billion.

In its annual report released last December, the Bretton Woods institution noted that the southern African country remains in debt distress and will need a comprehensive arrears clearance framework with the international community.

"Country could potentially be eligible for assistance if it meets end-2004 and end-2010 indebtedness criteria and if it clears its arrears to the Poverty Reduction and Growth Trust (PRGT),” it said.

The World Bank and foreign donors were forced to withhold vital aid to Zimbabwe at the turn of the millennium when the country defaulted on its foreign debt and policy differences with President Robert Mugabe’s government, including the often violent seizure of white-owned farms for the resettlement of landless blacks.

Since then Zimbabwe’s economy went on downward spiralling trend with unemployment reaching around 90 percent and millions in need of food aid. However, the economy began recovering in 2009 when a coalition government was formed that put a halt to years of hyperinflation through the introduction of hard currency.

As at August 2013, Zimbabwe’s arrears to the International Monetary Fund (IMF) and the World Bank amounted to $124 million and $1 billion respectively.

The World Bank noted that a modification of, or exception to, International Development Assistance’s HIPC Initiative income criteria would be required for the country to receive financial support.

“To receive HIPC debt relief, Zimbabwe would also need to qualify for the Initiative.

Qualification largely depends on Zimbabwe’s levels of debt vis-à-vis exports based on the latest fiscal year data and on its policy performance,” said the global bank.

In June last year, the IMF management approved a Staff-Monitored Programme (SMP) for Zimbabwe, aimed at assisting the country design and implement its economic recovery programme covering the period from April to December 2013, making it Harare’s first IMF agreement in more than a decade.

SMPs are informal agreements with IMF staff whereby staff provide advice to the authorities on the design of their economic programme and monitor the implementation of such a programme.

They do not entail endorsement by the IMF executive board or financial assistance.

The IMF said successful implementation of the SMP would be an important stepping stone toward helping Zimbabwe re-engage with the international community.

The SMP will focus on putting Zimbabwe’s public finances on a sustainable course, while protecting infrastructure investment and priority social spending as well as strengthening public financial management and increasing diamond revenue transparency.

Presenting his 2014 National Budget Finance minister Patrick Chinamasa said the resolution of Zimbabwe’s debt overhang was crucial to normalising the country’s relations with the international financial institutions and bilateral creditors.

“The continued accumulation of external debt payment arrears is seriously undermining the country’s creditworthiness, and severely  compromising the country’s ability to secure new financing from both bilateral and multilateral sources,” he said.

Chinamasa noted that government has been re-engaging with the IMF, World Bank and the African Development Bank on the resolution of Zimbabwe’s quest for debt relief.

“I must hasten to repeat what I conveyed to the Bretton Woods Institutions that the Staff Monitored Programme is keeping the Zimbabwean economy in a standstill position. This is not in the interest of both the creditor and our economy. Our economy needs an injection of new money,” he said.

“I, therefore, call upon all our creditors to seriously consider granting us debt relief and, at the same time, providing us with new funding so that we broaden our revenue base, thereby enhancing our capacity to honour our obligations,” added Chinamasa.

Zimbabwe — which requires close to $10 billion to jump start its economy — has also launched an economic recovery programme that envisages political and economic reforms to win back donor aid, although Western countries remain cautious.

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