Zim under pressure over IMF debt
http://www.theindependent.co.zw/
September 21, 2012 in News
GOVERNMENT will today come under increasing pressure to settle its debt with
the International Monetary Fund (IMF) amid indications three countries,
including Sudan, Somalia and Zimbabwe, as at June-end owed the
international financial institution Special Drawing Rights (SDR)1,3 billion
(US$2,007 billion at the rate of SDR1:US$1,54228 yesterday) in overdue
arrears collectively.
Report by Tendai Marima
The IMF will meet authorities today to discuss the Zimbabwe situation at a
time when Harare’s cooperation on policies with the Bretton Woods
institution has weakened.
The IMF says three members — Somalia, Sudan and Zimbabwe — remain in
protracted arrears to the fund. Somalia and Sudan have accumulated arrears
dating back to the mid-1980s, accounting for 18% and 76% of the total US$2
billion arrears, respectively. Zimbabwe, which has been in arrears to the
Poverty Reduction and Growth Trust (PRGT) since February 2001, accounts for
the remaining 6%.
The IMF executive board reviewed Zimbabwe’s overdue financial obligations to
the PRGT in September 2011 and subsequently in April this year.
It said Zimbabwe’s cooperation with the fund on policies had weakened. The
board said the authorities must align the execution of the 2012 budget with
realistic revenue forecasts in order to return to a path towards medium-term
fiscal and external sustainability and to increase economic resilience to
shocks by improving expenditure management, further strengthening financial
sector prudential regulations and their enforcement and improving the
business climate.
The directors underscored the importance of refraining from incurring
non-concessional liabilities, including using SDR resources, to prevent the
further exacerbation of debt distress and unsustainable widening of external
imbalances.
They also emphasised the need to demonstrate the capacity and commitments to
implement strengthened policies under an IMF staff-monitored programme,
including continuing timely data reporting, adopting remedial measures to
resolve irregularities in employment practices, controlling the payroll,
improving transparency in diamond revenues and taking additional actions to
reduce financial sector risks.
An IMF report Review of the Fund’s Strategy on Overdue Financial Obligations
released last week shows that by June-end, Zimbabwe owed the IMF’s PRGT
SDR85,9 million (US$132,6 million). Most of the debt overdue to the PRGT
facility is held by Sudan and Somalia who owe SDR983,3 million (US$1,5
billion) and SDR233,1 million (US$359,3), respectively.
Although the IMF noted a slight reduction in Zimbabwe’s arrears, it said the
country has a poor record of repayment. The report, prepared by directors
from the IMF’s finance, legal and policy strategy departments, also stresses
the urgency of Zimbabwe settling its outstanding arrears.
“Zimbabwe’s arrears to the PRGT have declined slightly. Cooperation with the
fund on payments remains poor and Zimbabwe was strongly encouraged to make
regular and timely payments to the fund and to increase them as the payment
capacity improves,” it said.
Minister of Finance Tendai Biti said yesterday Treasury, IMF and World Bank
officials would meet today to discuss the situation. Biti held a video
conference call on Wednesday with IMF officials to discuss the issue.
“Zimbabwe is not in arrears with the IMF. Zimbabwe owes money to the IMF,
the World Bank and other creditors. We are up to date with our payments to
the IMF,” Biti said.
“The Ministry of Finance is in intense discussions with the IMF and the
World Bank and we going to have a meeting with them tomorrow. We are going
have another one next month.”
Apart from its US$132,6 million IMF debt at June-end, Zimbabwe also owed
SDR614,6 million (US$947,9million) to the World Bank and SDR376,2 million
(US$580,2 million) to the African Development Bank.
The IMF says Zimbabwe could be eligible for debt relief under the Highly
Indebted Poor Countries (HIPC) initiative, but Harare has refused to accept
HIPC approach, claiming it would be used to interfere in internal affairs.
As an alternative, the Ministry of Finance launched the Zimbabwe:
Accelerated Arrears Clearance, Debt and Development Strategy in March this
year, a plan detailing how the country intends to pay off its liabilities
through a combination of debt relief and concessional loans or grants from
its development partners. Zimbabwe’s total debt is currently US$10,7
billion.
On re-engagement with the IMF, Biti said Zimbabwe does not have the means to
settle its debt and alternative sources would have to be found. “Zimbabwe
does not have the capacity to pay off the IMF from its own resources.
In this regard, the country will need to request cooperating partners for a
concessional bridging loan or a grant to settle arrears to the fund,” he
said.
“Clearance of Extended Credit Facility arrears will unlock new financing
arrangements from the IMF, within the context of a fund-supported financial
arrangement, which will then be used to repay the bridging loan obtained
from the co-operating partners.”
The IMF said Zimbabwe would need international assistance, but the country
must find ways of resolving problems of ghost workers on the payroll,
opaqueness in diamond revenues and taking effective steps to minimise
exposing the financial sector to systemic risks. “Zimbabwe faces an
unsustainable debt situation, and may at some point need comprehensive debt
relief from the international community,” it said.