ZIMBABWE is close to putting the final touches to a debt-arrears package that could see it receive an emergency injection of funds from the International Monetary Fund and other multilateral institutions into its cash-starved drought-stricken economy, officials have said.
The country — which has been treated as a pariah by the west for years — desperately needs money to pay civil service salaries, import food and alleviate a cash crunch.
The dire economic conditions have helped fuel a series of rare protests, as well as a strike by teachers, doctors and nurses over unpaid salaries.
This week, police used force against demonstrating taxi drivers in Harare. There have also been protests along the border with South Africa over restrictions on imports of basic goods, including bottled water, cereals and furniture, part of government attempts to prevent money flowing out of the country.
Such disturbances take place against the backdrop of political uncertainty as potential successors to President Robert Mugabe, 92, who has ruled since independence in 1980, jostle for position.
John Mangudya, the central bank governor who is in Europe to negotiate the financial package, told the Financial Times that the African Export-Import Bank [Afreximbank], advised by Lazards, was arranging a seven-year loan of $986m to pay back arrears to the World Bank.
Harare is desperate to re-engage with western multilateral institutions after years of isolation, but first has to pay off arrears totalling about $1.8bn to the bank, the IMF and the African Development Bank.
The loan from Cairo-based Afreximbank appears to have replaced an earlier mooted bilateral loan from Algeria, whose ability to lend has been hit by falling gas prices.
Mangudya said Harare expected to have paid back all its arrears in time for the September board meetings of the IMF and the African Development Bank. He hoped new loans to Zimbabwe could come before the end of the year.
“What we can tell you is that, obviously, if things move well, we’re expecting balance of payments support from the IMF,” he said.Advertisement
Patrick Chinamasa, finance minister, said the whole point of the rapprochement, after 16 years of being shut out of international lending, was to receive new funds.
Zim needs new money
“For us to turn round the fortunes of our country we need new money,” he said, adding that manufacturing “was on its back” and government finances severely strained.
Some of the money would be put into agriculture, which has been starved of funds, he said.
Zimbabwe collapsed into economic chaos after Mugabe implemented a controversial land reform programme around 2000, which led to the seizure of white-owned commercial farms.
The land grabs, human rights abuses and violent, disputed elections saw western nations cut off aid to Zimbabwe and impose sanctions on Mugabe and other members of his ruling Zanu PF party.
But now western diplomats are seeking to avert a deepening economic crisis, amid concerns about what could happen when Mugabe dies or leaves office.
Chinamasa said Washington had become more sympathetic to the idea of a rapprochement with Zimbabwe, although an American official said the US remained opposed to a deal with the IMF.
Harare has been in arrears to the IMF, to the tune of $111m, since 2001, and owes the World Bank more than $1bn.
The dollar shortage currently blighting the country is partly the result of Harare moving to a fully dollarized economy — dumping the worthless Zimbabwe dollar — in 2009 as an emergency solution to counter record hyperinflation.
Originally intended as a multicurrency regime, the US dollar has become virtually the only currency in circulation.
As a result, the central bank is powerless to adjust money supply.
Mangudya, who joined the bank from the private sector in 2014, said it had been a mistake to throw the bank’s monetary tools “in the river,” shackling Zimbabwe’s fortunes to the rising greenback.
As a result, he said, the country had become highly uncompetitive compared with its neighbours.
The currencies of all the countries in southern Africa, including the South African rand, have fallen sharply against the dollar. Much of the machinery in Zimbabwe, once a regional manufacturing powerhouse, has lain idle for years.
Mangudya said Zimbabwe needed an “internal devaluation” of about 20 per cent. In the absence of its own currency, the only way of bringing this about would be to cut wages, although Mangudya was reluctant to put it in those terms.
“When I started my work in 2014, I said we need to go back to basics. People did not listen. I said no salary increase,” he said. “People were saying this man was mad.”
As a stopgap measure, the central bank plans to issue “bond notes”, a form of currency that will be paid to exporters as an incentive to sell products abroad and earn dollars.
Mangudya said the controversial notes were needed “before the patient goes into surgery”, but were not a long-term solution to Zimbabwe’s problems.
The issue of bond notes — which has been criticised by some Zimbabwean economists — will be capped at $200m and will only be credited to companies that are earning dollars via exports, he said.
This report is taken from the Financial Times.