Saturday, September 22, 2012

Zimbabwe: Country Under Pressure Over IMF Debt

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.
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.

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