Zimbabwe will seek new loans from the International Monetary Fund, World Bank, and African Development Bank to stem the economic slowdown, finance minister Patrick Chinamasa said today.
The southern African country will raise cheaper loans from the Africa Export and Import Bank (Afreximbank) to settle the $601 million arrears with the AfDB and use Special Drawing Rights it has with the IMF to settle the $110 million in arrears to the fund.
It would also raise more cheap loan capital to clear the $1.15 billion in arrears to the World Bank although Chinamasa did not mention the source of the funds.
The southern African country is struggling due to slowing economic growth, poor commodity prices that have hurt its mining industry and chronic power shortages that have decimated manufacturing capacity while its industry is in desperate need for cash to retool.
Last week Chinamasa said Zimbabwe will clear arrears by the end of next April as a major step towards unlocking new funding and today told a mining conference that there was ‘overwhelming’ support for its strategy at a meeting of creditors on the sidelines of the IMF/World Bank annual meetings in Lima, Peru last Thursday.
“The strategy involves borrowing money at cheaper than what we would otherwise pay under the existing situation, from Afreximbank that loan will clear our loans from AfDB. With respect to our debt to the IMF, we will use our Special Drawing Rights, we have something like $130 million in SDRs,” said Chinamasa.
“It is like debt rescheduling — substituting one debt with another but at an affordable rate and with a different timeframe and not suffer the penalties. Much of the debt we have with our creditors is largely penalties arising from default.”
Zimbabwe started defaulting on its debt to the IFIs in 1999 — the last year it got IMF loans — and is struggling to emerge from decade-long meltdown that lasted until 2008 when the economy declined by as much as 40 percent.
Without any balance of payment support and starved of foreign credit, Zimbabwe’s budget is funded 100 percent from tax collections and most of it goes towards salaries, leaving no money for infrastructure.
“We are going to start now a country financing programme to be funded by the three multilateral institutions. We agreed with the three multilateral institutions that we start now to prepare a country financing programme,” said Chinamasa.
“Clearly, we need a lot of money to pump into this economy to revive agriculture, the mining sector, tourism, manufacturing. We need to completely retool the manufacturing sector which is on its back. As we clear our debt, we must have the promise of new money. When we clear our arrears we are obliged to start making the normal payments, but if our economy is not performing, then we will not be able to do so.”- The Source