Zimbabwe proposes strategy to deal with external debt

The International Monetary Fund (IMF) says Zimbabwe has developed a proposal for a strategy to resolve its external arrears with international financial institutions, seen as the major impediment to accessing fresh capital.

The Fund has also given the government positive reviews on its implementation of targets set under the staff monitored programme — an informal agreement between a government and IMF staff to monitor the implementation of its economic reforms engaged, which however does not entail resumption of funding from the Bretton Woods institution.

Zimbabwe’s proposals will be discussed by both the IMF and the World Bank next month.

The southern African nation owes $9 billion in external debt, half of it in arrears, and has not received loans from the IMF, World Bank and African Development Bank since 1999 due to policy differences between President Robert Mugabe and the West.

Domenico Fanizza, who is leading the IMF team to review Zimbabwe’s progress under the fund’s Staff Monitored Programme (SMP), said the proposal will be discussed at a stakeholders meeting on the sidelines of this year’s Annual Meetings of the IMF and the World Bank to be held in Lima, Peru next month.

“The authorities have … developed a proposal for a strategy for resolving Zimbabwe’s external arrears to the international financial institutions (IFIs), for which they intend to seek support from creditors at a dedicated stakeholders meeting,” said Fanizza.

The meeting with creditors will be “instrumental in highlighting the authorities’ reform agenda on the path toward normalizing relations with the international community”, he added.

Zimbabwe’s economy is slowing down due to lack of foreign investment, weak commodity prices and the underperformance of key sectors such as agriculture.

Fanizza said the country had made encouraging steps in reorganising government expenditure and liberalizing its labour markets under the SMP,  the third since 2012.

“We are pleased that the authorities have successfully implemented most of the program. They have respected all the quantitative targets for end of June and all what we call structural benchmarks,” he said.

The IMF has long pointed at government’s excessive recurrent expenditure which in 2014 stood above 90 percent of the country’s budget and outdated labour laws as in need of reform.

“They have taken steps in preparing work for reorganizing and restructuring government expenditure and to liberalize the labour markets. Certainly these are preliminary and it will take time to see the results.”

In July, government lowered its GDP projection to 1.5 percent from 3.2 percent earlier, which Fanizza said was realistic.

“We have looked again at the indicators and yes we agreed on maintaining the 1.5 percent which seems to be cautious and safe. There has been a significant a slowdown in economic activity. There has been a drought which has weighed on the economy activity,” he said.

“Moreover the international environment is becoming increasing difficult with low prices for Zimbabwean exports and those are the main reasons for the downward revision.”- The Source



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