ZIMBABWE’S standing with international lenders and investors has improved significantly after the country agreed to an arrears clearance plan with major multilateral institutions last month, finance minister Patrick Chinamasa said on Friday.
Chinamasa told a meeting to review his 2016 national budget presented on Thursday that should Zimbabwe deliver on its promise to clear $1,8 billion arrears with the African Development Bank (AfDB), the World Bank and the International Monetary Fund (IMF), the country would be in line for a fresh funding programme from the global lenders. Zimbabwe’s external debt stands at about $7 billion.
The AfDB, World Bank and IMF approved Zimbabwe’s arrears clearance strategy plan at a meeting in Lima, Peru, last month. The plan entails Zimbabwe clearing its arrears by April 2016.
On Thursday, Chinamasa tabled a standstill $4 billion budget for 2016, 92 percent of which will go to recurrent expenditure, leaving no room for debt servicing.
While details of the plan remain scant, it is understood that Zimbabwe, which clearly lacks the financial resources to expunge its debt, would use a combination of bridging loans from the African Export Import Bank and bilateral financial support from ‘friendly’ states, to clear the arrears.
“Acceptance of our arrears clearance strategy has improved our standing. Our risk premium is already being looked at in better terms,” Chinamasa told the budget review meeting.
“If we go the extra mile to clear the arrears, it will be a new ball game entirely because that will put us in line for a country financing programme.”
Work on the financing programme had already started with the IMF, World Bank and AfDB under a committee chaired by the central bank governor, John Mangudya, he said.
“As we clear the arrears, they must give us money to finance our economy. We need to build our economic capacity to repay our debts,” said Chinamasa.
BancABC chief economist who also addressed the meeting, said the acceptance of the arrears clearance strategy was “a game changer that shows that Zimbabwe could now be trusted as a business partner.”
Banks have bemoaned Zimbabwe’s high country risk, saying this levies an additional premium on the cost of funds, making the country more expensive.Advertisement
IMF Zimbabwe head Christian Beddies told Reuters on Sept. 21 that the Fund could resume funding to the southern African country in 2016, should the arrears clearance plan be implemented successfully.
Zimbabwe last received funding from the IMF in 1999. The IMF in February 2010 restored Zimbabwe’s voting rights after a seven-year suspension.
‘Corruption now endemic’
Chinamasa said Zimbabwe needed a consistent growth rate of 10 percent per annum for at least 10 years to catch up with regional peers.
“That is why we are concentrating on fixing the policy framework, that is why we are focusing on the ease of doing business,” he said, adding that the country had jumped 16 percentage points on the index.
Efficiency at points of entry, particularly Beitbridge border post would be a key priority in 2016. The minister said corruption now endemic and not easy to tackle but will focus on forms of corruption that are damaging to the economy.
On Friday, Chinamasa, whose tenure at Treasury has transformed him from a hawkish member of President Robert Mugabe’s Cabinet to a sharp-elbowed reformer, also made an impassioned plea for foreign capital to be embraced, regardless of where it came from.
While Mugabe has championed a ‘Look East’ policy on investment, eschewing his erstwhile western backers while courting China, India and Russia for investment and aid, Chinamasa has brushed off criticism from some his Cabinet colleagues over his re-engagement with multilateral lenders, especially the IMF.
“Let’s depoliticize economic issues. Let’s look at investors as investors, not where they are coming from. We should change our attitudes and welcome foreign capital,” Chinamasa said.
Zimbabwe has fallen behind regional peers, Botswana, Zambia and Mozambique, in terms of foreign direct investment flows. Zimbabwe’s FDI inflows amounted to $1.7 billion over the period 1980 to 2013, whereas, Zambia and Mozambique received $7.7 billion and $15.8 billion, respectively.
The country’s low FDI flows have been blamed on policies such as the seizure of white-owned farms to resettle landless blacks from 2000, and the current drive by Mugabe’s government to force foreign-owned businesses, especially mines, to cede 51 percent shareholding to local blacks.