Harare - Zimbabwe is to receive a US$900 million bailout from Algeria for arrears clearance, ahead of a crucial International Monetary Fund...
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Harare - Zimbabwe is to receive a US$900 million bailout from Algeria for arrears clearance, ahead of a crucial International Monetary Fund (IMF) board meeting on the country scheduled for Monday.
The IMF board meeting is expected to pave way for a debt clearance strategy, which government said this week would be completed between September and October.
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| Zimbabwe is Working Flat Out to Clear Arrears |
Zimbabwe is working on a plan to clear at least US$1,8 billion in arrears to the IMF, the World Bank and the African Development Bank (AfDB). An Algerian embassy official confirmed the deal with Zimbabwe, but said this was being handled in Algiers, the Algerian capital. Government sources said Zimbabwe had turned to Algeria because it could give cash.
They indicated that the so-called all-weather friend, China, did not lend cash to extricate its allies from debts. China, which has signed multi-billion dollar deals with Zimbabwe, has refused to commit itself to any form of balance of payments support to Harare, which is grappling with an acute liquidity crunch.
Support to Zimbabwe for clearance of debt arrears would enable the country to reintegrate into the international community, but such a prospect may not augur well with China, which would face competition in the exploitation of resources from Western countries who banished the country in the early 2000s after falling behind in loan repayments.
After clearing arrears to the three international financial institutions (IFIs), it is expected that a new round of talks would start with other multilateral and bilateral creditors, with a view to agreeing on a settlement plan for outstanding debts.
The initial plan had been to clear all arrears with the IMF, World Bank and AfDB by April.
By June 2016, Zimbabwe was expected to start engaging other creditors, such as the European Investment Bank and Paris Club and non-Paris Club members.
But Finance Minister, Patrick Chinamasa, said this week they were now working on getting an arrears clearance strategy in place by September after taking a cue from the IMF board which is meeting to discuss Zimbabwe on Monday.
The IMF board will meet to discuss the country’s debt situation as well as its economic circumstances at the meeting, which will be guided by a report by an Article IV Consultation Mission which was in Zimbabwe from February 24 to March 11.
The mission also reviewed a 15-month Staff-Monitored Programme (SMP) approved by the IMF management in October 2014. In its report, the mission, which was led by an IMF executive, Domenico Fanizza, said Zimbabwe had “met all quantitative targets and structural benchmarks under the third and final review of the SMP”.
“Moreover, they have started to develop a medium term economic transformation programme, in line with the broader reform agenda presented at the Lima meetings on arrears clearance in October 2015,” said the report.
Zimbabwe presented its debt clearance plan to international creditors on the sidelines of the IMF and World Bank annual meetings in Lima, Peru, which was reportedly well supported by stakeholders.
“We are encouraged that the authorities plan to clear the outstanding arrears with international financial institutions, as outlined at the Lima meetings.
The successful resolution of Zimbabwe’s external payment arrears will be an important step towards normalising relations with the international financial community and will allow the country to eventually seek a Fund financial arrangement,” the IMF mission said.
It noted that clearance of arrears would “send strong signals to the international community, reduce the perceived country risk premium, and unlock affordable financing for government and the private sector”.
“This, together with policy reform, will help to achieve sustained economic development through economic transformation, to improve living conditions for the people of Zimbabwe, and to reduce poverty,” the mission’s report said.
In terms of the Lima plan, Zimbabwe made arrangements to clear arrears to the tune of US$1,8 billion owed to the three IFIs. It indicated that it would use its special drawing rights from the IMF to repay US$110 million to the Fund.
A bridge loan of US$819 million from the African Export-Import Bank would be used to repay US$601 million to the AfDB and US$218 million to the World Bank’s International Development Association. Algeria would provide a US$900 million loan to repay the International Bank of Reconstruction and Development (IBRD).
IBRD is an arm of the World Bank which was created in 1944 to help Europe rebuild after World War II. Today, IBRD provides loans and other assistance primarily to middle income countries. It works closely with the rest of the World Bank Group to help developing countries reduce poverty, promote economic growth, and build prosperity.” - Fingaz
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