Zim's frayed theatre of reform

HARARE - Impoverished Zimbabwe must clear $1,8 billion of debt arrears to the World Bank (WB) and the African Development Bank (AfDB) before the banks can start lending to President Robert Mugabe’s government, economists have said.

This comes after Singaporean global commodities firm, Trafigura Group, has agreed to provide Zimbabwe with $1,1billion that enables the government to pay off its overdue debts to the international financial institutions (IFIs).

Some Western countries, mainly the European Union, have eased sanctions imposed on government since Mugabe started taking steps to reform the economy.

But until now, IFIs had been prevented from making new loans to Zimbabwe because the country stopped payments on its old loans around 1999, and is struggling to emerge from a catastrophic recession that ran for a decade until 2008.

Without any balance of payment support and starved of foreign credit, Zimbabwe is running its budget hand-to-mouth, leaving it with virtually no money to pay government workers or rehabilitate collapsing infrastructure such as rail and roads.

Finance minister Patrick Chinamasa said he successfully presented Zimbabwe’s plans to clear arrears to creditors at the IMF and WB spring meeting in Washington DC last week.

A well-rehearsed yet selective narrative about progress toward clearing debt arrears and economic revival was first presented to international creditors at the IMF/WB annual meetings in Lima, Peru in October 2015 where consensus was reached with creditors on a repayment strategy which entailed the clearance of the country’s $1,8 billion arrears.

The WB has been working with the government on proposed debt arrears clearance programme, the bank said.

“The government of Zimbabwe is pleased to announce that it has met all the conditions precedent to the repayment of debt arrears to the WB and the AfDB,” Chinamasa said in a statement on Thursday.

“This positive development comes after the country successfully settled its debt arrears to the International Monetary Fund (IMF) in October 2016.”

Zimbabwe last year settled the IMF’s $124 million in arrears accrued since 2000, but still owes another $600 000 to the AfDB while an additional $1 billion is characterised as WB debt.

Zimbabwe cleared the IMF arrears by special drawing rights (SDRs) of about $130 million from the Breton Woods institution.

To honour the outstanding arrears, Zimbabwe has been borrowing from the Afrexim Bank in Egypt before turning to Amsterdam-headquartered Trafigura, which runs Puma Energy, and has given Zimbabwe short-term credit to be repaid in three $400 000 batches.

Chinamasa said the terms and conditions of the facilities that the Reserve Bank of Zimbabwe have put in place to repay the debt arrears have been scrutinised and adjudged to be reflective of current market conditions, with financing terms similar to market transactions recently concluded by several sub-Saharan African countries during 2016 and 2017.

“It is on this basis that Zimbabwe can now proceed to repay its debt arrears,” Chinamasa said.

“Clearance of debt arrears is expected to attract in the short to medium and long term foreign and domestic investment, given perceptions of lower country risk, and would be expected to open the door to foreign finance inflows and possible debt treatment by the Paris Club and non Paris Club bilateral creditors through an IMF financing programme.”

Britain, Germany, France, US and others are part of the Paris Club — a forum where Zimbabwe’s debt to the IFIs is discussed and agreement is reached on how to manage that ballooning debt.

Zimbabwe would have to repay $1,8 billion in debt arrears to have a chance of new funding, without knowing if credit is available or what its economic and political conditions might be.

Veteran economist John Robertson said government says “it has met all the conditions precedent” and this means only that it has almost become eligible to be considered for new loans.

“To become fully eligible, it must actually settle the debt arrears and it must actually carry out the promised reforms,” he told the Daily News on Sunday.

“Making more promises that it will do these things will not be enough.

“The new loans will have to be repaid and the existing loans still have to be repaid. The only funding being spoken about now is the funding to repay the arrears.”

University of Zimbabwe economics lecturer and Mugabe’s economic advisor Ashok Chakravati told the Daily News on Sunday: “If we have met all the economic conditions, that is indeed very good news.

“However, no new lines of credit can be agreed upon until we clear the arrears ...owed to WB and AfDB.”

Economic consultant Tony Hawkins told the Daily News on Sunday that “Zimbabwe needs to undertake serious structural reforms, including political reforms. This is a first step along a long road.”

Robertson said the government must implement wide ranging economic reforms to boost growth if it is to be eligible for new lines of credit.

It is unlikely the government and ruling party will enthusiastically embrace austerity reforms that would block their current populist policies.

Any meaningful economic reform process is further hampered by internal factionalism within Zanu PF over who will succeed Mugabe.

Reform and re-engagement is being championed by key Emmerson Mnangagwa ally, Chinamasa, supported by Reserve Bank governor John Mangudya.

Both were in Washington DC last week to make the case that Zimbabwe was politically-stable and open for investment.

“The lenders are demanding that the reforms will be carried out to ensure that their loans will be repaid,” Robertson said.

“Only a successful and growing economy can afford to repay debts. The common assessment is that the economy cannot succeed under its current policies.

“For this reason, the reforms call for policy changes. Many policies currently discourage investors: disrespect for property rights and civil rights, indigenisation demands, confiscations of mining claims, protected jobs in public service and the continuing, but condoned failures of public enterprises, such as Air Zimbabwe and NRZ, these are just some of the reasons why the country needs help.

“But Zimbabwe still has a lot to do to deserve the help that it needs.”

The IFIs want better governance, transparency, institutional accountability, and human rights. These all remain key benchmarks of tangible progress: for now, the government appears to be backsliding, only selectively amending old laws to align them with the reformed 2013 constitution.

The ruling Zanu PF does not speak in one resolute voice about the reform programme it is ostensibly trying to promote.

The overall strategy theoretically has the full support of Mugabe and senior party members.

But Zanu PF feels humiliation at putting its hand back out so publicly for help from those outside powers it still describes as its enemies.

In practice, Mugabe has been unenthusiastic and has allowed sharp criticism to emerge from Zanu PF.

In September last year, Chinamasa got a slap down from Mugabe after announcing a raft of measures to slash government spending in line with the Lima plan.

Government issued a damning statement saying Cabinet had never approved Chinamasa’s proposals, which included a suspension of civil servants’ bonuses, wage cuts, job cuts, and a range of other austerity measures.

“Blaming ‘the West’ for burgeoning dissent undermines those seeking genuine re-engagement, and emboldens those who seek political capital from opposing the broader reform agenda,” Piers Pigou, senior consultant at International Crisis Group said.

“For critical Zimbabweans, the efforts look increasingly bogus. Claims from the government that it has clarified its position around controversial issues such as its indigenisation policy, property rights and compensation for land seizures are not supported by objective realities on the ground.”

To date, the reform and re-engagement process under the “Lima Strategy Document” — the government’s primary plan for clearing its arrears - has been a largely exclusive, even secretive, affair.

Hawkins also said details of the latest plan by Chinamasa was only officially made public through sketchy details that set out a broad roadmap, but with little detail.

The government avoids or denies challenges that it has lost public trust.

But most opposition parties, and a host of civil society actors representing important constituencies, have little or no confidence in the economic reform process or the government’s commitment to honouring the new Constitution.

Tapiwa Mashakada, the opposition MDC’s shadow Finance minister, sledged Chinamasa’s statement as “a high sounding nothing.”

“It does not contain any new information that is not already in the public domain. We all know that the $150 million paid to the IMF was not physical cash but SDRs that the inclusive government left at the RBZ, thanks to the fiscal prudence and financial dexterity of (former Finance minister) Tendai Biti,” he told the Daily News on Sunday.

“To say that Zim has met all the conditions precedent for settling the WB and AfDB debt is being dishonest. The budget deficit is worsening; parastatals are bleeding; the current account deficit is in a precariously red position; GDP growth is low and the economy is still in a depression; FDI levels are below $500 million per annum; public financial management is in shambles; corruption is footloose; deindustrialisation is taking its toll.”

He said the macroeconomic and fiscal framework is unstable; the liquidity and cash crisis is unabated.

“So what market conditions could be worse than these? It is unthinkable how Zimbabwe can service its debts when government cannot pay salaries and bonuses.

“The US dollar is now an endangered specie, so what form of legal tender will be used given the sharp decline in export earnings? Chinamasa’s statement should be dismissed with the contempt that it deserves.”

If Zimbabwe follows on the debt clearance, the WB has said its board will decide on fresh credit for Zimbabwe that would support critical reforms being implemented by the government to strengthen macroeconomic stability, improve public financial management and improve the investment climate.

If the country qualifies for fresh lines of credit, it will be the first loan to Zimbabwe in almost 20 years.

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