IMF warns Zimbabwe against more borrowings


The International Monetary Fund has warned Zimbabwe not to take on additional debt under non-concessionary terms, as the country pursues its arrears clearance plan with multilateral lenders.

Last year the southern African nation, which has been in arrears since 2001, used its allocation of Special Drawing Rights (SDRs) to settle a $108 million debt owed to the IMF’s Poverty Reduction and Growth Trust (PRGT) but it still owes the World Bank $1.7 billion in arrears. 

The country is yet to reach an agreement with the World Bank and other multilateral institutions on the settlement of arrears, and undertake reforms that would facilitate resolution of arrears with bilateral creditors, delaying the re-engagement process.

“The authorities view market resources, an option with costlier financial terms, as the only alternative to clear World Bank arrears in the absence of official support.  They are willing to collateralize gold proceeds to settle these obligations, and pave the way for regularization of arrears with other creditors,” the IMF said in a report released late Friday after a meeting of its board.

The IMF, however, raised concerns over the sustainability of relying on market resources to repay the World Bank obligations.

“Collateralising gold proceeds could complicate future debt relief. The key question is the timing and quantity of new financing that the arrears clearance could unlock,” the IMF said.

The clearance of arrears is seen as a key step for the country to be rehabilitated into the international community before it can access any form of new financing from lenders. 

Zimbabwe’s foreign debt stands at more than $7 billion, about 50 percent of its GDP.

President Robert Mugabe’s government is borrowing heavily on the local market, with domestic debt now at $4 billion after running a budget deficit of $1.4 billion last year. 

The IMF also wants the government to scale back on unbudgetted expenditure in agriculture under its ‘Command’ scheme under which it borrowed $192 million from a local fuel dealer, Sakunda.

Harare says it has raised $500 million for the programme in the 2017/8 season.

IMF “encouraged the authorities to engage only in well‑targeted, cost effective, and properly budgeted support to the agricultural and other productive sectors,” said the IMF.

“Budgetary operations are crowding out the private sector, and the expenditure profile tilted towards employment costs and unsustainable agricultural support is inhibiting investments in other priority sectors, particularly infrastructure and social outlays.”

An IMF team  led by Ana Lucía Coronel,  visited Zimbabwe for Article IV consultations from May 2 to 13.

In the report, the IMF projects Zimbabwe’s inflation to increase to 7 percent by year-end.

In May Zimbabwe’s inflation was at 0.75 percent up from -0.65 in January.


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Charles Rukuni
The Insider is a political and business bulletin about Zimbabwe, edited by Charles Rukuni. Founded in 1990, it was a printed 12-page subscription only newsletter until 2003 when Zimbabwe's hyper-inflation made it impossible to continue printing.


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