The Sunday News
Roberta Katunga, Senior Business Reporter
ZIMBABWE has shown its commitment to settle international debts obligations by fully paying its overdue financial obligations to the International Monetary Fund and this must be a turning point to unlock fresh capital to boost the economy.
Most international financial institutions have been reluctant to advance fresh capital to Zimbabwe and its companies arguing that the country was failing to repay its external debts now estimated to be above $7 billion.
On Friday IMF announced that Zimbabwe has settled its Poverty Reduction and Growth Trust (PRGT) financial obligation amounting to more than $100 million which has been overdue for 15 years.
“On October 20, 2016, Zimbabwe settled its overdue financial obligations to the Poverty Reduction and Growth Trust (PRGT) of the IMF. Zimbabwe had been in continuous arrears since 2001. To settle these obligations, which amounted to SDR 78,3 million (about US$107,9 million), Zimbabwe transferred part of its SDR holdings kept at the IMF to the PRGT account.
Zimbabwe is now current on all its financial obligations to the IMF,” said Mr Rice.
Economists and captains of industry noted that this was a positive move which would go a long way in reducing the country’s risk profile in the process enabling creditors to gain more confidence to engage Zimbabwe in financial transactions.
Zimbabwe Investment Authority board chairperson Dr Nigel Chanakira said although the debt payment was a good start, similar payment for World Bank arrears and African Development Bank arrears must be put in place.
As at June 2016, the country owed World Bank $1,1 billion and the African Development Bank $601 million.
“Settling arrears with World Bank and African Development Bank as well, puts us in a good position to access borrowings if the country puts up a programme of stabilisation and reform for the fragile economy. We have a better chance of our Government accessing these multilateral financing organisations for cheaper borrowings and avoid crowding out the private sector. Currently 40 cents of every $1 saved is being borrowed by Government which accounts for the lack of liquidity in the market,” said Dr Chanakira.
He said one important factor that was now lacking is a fiscal reform programme where Government has to cut its expenditure.
“Fiscal cuts are an imperative part of a programme that would be approved. The use of borrowings in poverty alleviation, fiscal space to pay existing Government domestic debt to local suppliers and a capex programmes under the Public Sector Investment Programme could well stimulate domestic growth,” he said.
Dr Gift Mugano, an economist said the move by Government to settle its IMF debt could benefit local companies that were not able to source cheap funding from cash rich countries.
“Companies have been borrowing money at double digit interest rates due to the risk premium tied to the country instead of the London Interbank rate which is around one percent or at most three percent. We are hoping this gesture will help companies get money at a lower rate,” he said.
Dr Mugano, however, said in terms of the country being able to borrow from the IMF, it was tricky because the institution borders on political lines where one dollar is equal to one vote with the United States of America owning a 17 percent stake in the IMF.
“Under normal circumstances if you pay your debt, you are liable to borrow but the IMF is governed by different factors. This therefore means that our standing with the US matters when it comes to borrowing from the IMF,” he said.
Buy Zimbabwe chief economist Mr Kipson Gundani said the demonstration of Government commitment towards repaying its debt was a confidence booster in the multilateral institutions if the move is not interpreted as a desperate gesture to make amends with the rest of the creditors.
“The payment of arrears to the Brentwood Institution can pave way for debt forgiveness negotiations with the Paris Club lenders and other bilateral lenders to Zimbabwe. A positive factor for the Government is that they did not take money from treasury to settle the debt but used part of its SDR holdings to pay,” said Mr Gundani.
Zimbabwe National Chamber of Commerce Matabeleland Chapter president Mr Crispen Mugova described the move as a positive development that is likely to open up more financial assistance for Zimbabwe.
Mr Mugova said both the private sector and the Government would benefit from the debt clearance as negative perceptions about the country get managed.
“Through this debt settlement, as the private sector, we foresee external lines of credit being opened up with our creditors gaining more confidence in our country. By paying back, it shows commitment on the part of the Government and that on its own should improve our relations with the creditors,” he said.
Mr Mugova urged the Government to continue engaging and building trust with multilateral institutions as business is based on trust. He said it was important for Zimbabwe to meet all its trade agreements and not default as defaulting affects one’s next transaction.
“In future, when we borrow, we must not do so without proper due diligence. We have to use those lines of credit profitably to boost our economy and borrow in such a way that we are able to repay,” said Mr Mugova.
