Engage lenders, IMF urges Zim

HARARE - The International Monetary Fund (IMF) says Zimbabwe must engage its creditors to arrest economic collapse.

Following President Robert Mugabe’s election victory last year, the economy has regressed with investors shunning the country and companies closing shop, among other challenges.

The country, saddled by multi-billion dollar debt, is struggling to secure international lines of credit and external budgetary support.

“It will be necessary to engage with the country’s creditors to work towards a solution to the long-standing debt arrears problem,” IMF said last Thursday.

Economic analysts have also warned that Zimbabwe’s foreign and domestic debt will continue to undermine the country’s creditworthiness and compromise its ability to secure new funding.

The southern African country is failing to attract new capital to stimulate growth in the economy due to a $10 billion external debt owed to various international money lenders.

Economist Brains Muchemwa said it was important to consider the ability of government to generate future revenue to offset the current debt stock.

“The ability of the Zimbabwean government to service its debt is a function of the vibrancy of its revenue model, implying therefore that the economy must keep growing, broadening the tax base while a rational civil service reform needs to be implemented to conserve cash and improve the debt servicing,” Muchemwa said.

He said disposal and commercialisation of loss-making parastatals needs to be prioritised, and equally, the tightly regulated industries such as telecommunications needed to be further liberalised so that government generates more revenue from taxation.

This comes as the country — which  adopted the IMF prescribed  staff monitoring programme in June last year, to help it clear external debts and give it access to new credit from international lenders — has indicated it will make a “token payment” to the international money lender to reduce its debts.

“We’ve entered into a payment plan,” Finance minister Patrick Chinamasa said this week. “It’s a token payment because we don’t have the capacity right now to service the debt.”

Zimbabwe’s economy is recovering from years of collapse, prompted by a political crisis that hit the currency and caused hyperinflation.

However, lack of aggregate demand in the country, company closures and controversial economic policies are some of the risks threatening to derail economic revival.

In December, Chinamasa forecasted 6,1 percent growth, boosted by the recovery of the agricultural sector, mining and construction.

But the IMF said the country’s potential to achieve fuller growth depended on increased investment spending by the government, improving the investment climate and transparency in the mining sector.

The World Bank and the IMF suspended aid to Zimbabwe in 1999 over differences with the Zanu PF regime’s unsustainable economic policies.

Zimbabwe currently owes the IMF $124 million. It fell into arrears in 2001, and was expelled from the Fund in 2005.

The World Bank, which is owed $1 billion, says Zimbabwe should devise a comprehensive arrears clearance plan with international lenders to qualify for fresh loans.

The institution’s programmes in Zimbabwe are currently limited to humanitarian aid.

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handy man - 31 March 2014

Zimbabwe was never expelled from the Fund. It made a hasty payment in 2005, a week before the Fund's Executive was supposed to meet to expel Zimbabwe

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