Zimbabwe: Country Under Pressure Over IMF Debt

By Tendai Marima, 21 September 2012

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.

Zimbabwe: Govt Admits No Money Coming From Army Controlled Diamond Firm

Zimbabwe's government has admitted that it is not receiving any money from an army controlled diamond firm in Chiadzwa, which was meant to be a joint venture cash-cow for the state.
The Anjin mining company was formed in 2009 on a joint agreement between Zimbabwe and China, after the original claim owners in Chiadzwa were booted off the site. The agreement was theoretically meant to ensure that a sizeable portion of profits from the lucrative alluvial mine went to the Finance Ministry, through the state owned Zimbabwe Mining Development Corporation (ZMDC).
The ZMDC also entered into other joint ventures in Chiadzwa, and the possibility of billions of dollars saw Finance Minister Tendai Biti peg the national budget on potential remittances. Biti said in his 2012 budget that he had been promised US$600 million from diamond sales by the Mines Ministry, with most of the money already allocated to various infrastructure development projects.
But half-way through the financial year, the Prime Minister has said that only US$25 million of diamond money has been remitted to treasury. In Cabinet Morgan Tsvangirai told legislators on Thursday that funds received to date had been very disappointing and far short of budgetary estimates.

Biti has now also admitted that Anjin is not remitting anything to treasury despite making a serious profit. In an interview with The Independent newspaper this week, Biti said nothing was coming from the company, "not even a single cent."
Biti last month raised these same concerns in Parliament, while also expressing concern that the ZMDC was not a shareholder, as the government originally thought it was.
"We, in the Ministry of Finance, now fear that there may be a parallel government where these monies may be going and not coming to us," Biti told parliament last month.
These concerns have also since been justified, after the Country's Deputy Mines Minister confirmed that the Zimbabwe Defence Industries (ZDI) owns 40% of the Anjin mining firm. Although the ZDI is, on paper, a private company, all the shares in the company are held by the ZANU PF controlled Ministry of Defence.
Chimanikire insisted that the government still had a stake in that mine, saying that 10% of the Anjin shareholding was still held by the ZMDC. But Biti told The Independent that the ZMDC is not involved, suggesting the 10% shareholding is held by another suspect military group, called Matt Bronze.
Dewa Mavhinga from the Crisis in Zimbabwe Coalition told SW Radio Africa on Friday that the army's strong involvement in the mining sector was "unacceptable, wrong and not good for Zimbabwe's security." He said that the military's strong allegiance to ZANU PF was particularly worrying, amid growing concern of a return to violence when a fresh election is called.
"Zimbabwe's military appears to be entrenching itself firmly in political circles and with elections nearing, we are worried. If the diamond revenue is not going to the Treasury and it's not going to the public, then where is it going and who is benefiting? These are questions that need urgent answers," Mavhinga said.

Zimbabwe Revenue Authority Surpasses First Quarter Tax Collection Targets

The Zimbabwe Revenue Authority (ZIMRA) says it surpassed its first quarter revenue target by eight percent due to improved local industrial capacity utilization and upward review of salaries of workers by some companies.


ZIMRA chairman Stanford Moyo said in a statement, total gross revenue collections stood at $774 million against a target of $714 million.

Moyo said the largest portion of the revenue was realized from Value Added Tax (VAT) which contributed 38 percent of the total collections followed by individual tax.

VAT contributed $292.7 million while individual tax accounted for 19 percent of the total revenue and total collections from Customs duty amounted to $88.9 million.

He said indications are that industrial capacity utilization currently estimated at 57 percent boosted individual incomes and the purchasing power of Zimbabweans resulting in remarkable VAT and individual tax collections.

“The outstanding performance of this revenue head (VAT) can be attributed to improved local industrial capacity utilization which enhanced performance of VAT on local sales,” said Moyo.

Individual tax collections were $145.5 million against a target of $160.2 million, resulting in a negative variance of 10 percent.

He said this can be attributed to the tax-free threshold which was reviewed upwards from $225 to $250 per month in the 2012 by Finance Minister Tendai Biti. “The upward trend had the effect of increasing disposable income for employees while reducing the taxable portion.”

Moyo said the quarterly Customs Duty revenue target was missed because the local industry has experienced significant improvements in terms of capacity utilization resulting in the economy dumping most imports.

He further said by the end of the quarter, about 30 million kilograms of tobacco had been auctioned at an average price of $3.70 per kilogram and this translated to $135 million worth of tobacco sales.

Economic commentator Masimba Kuchera of the Zimbabwe Coalition on Debt and Development said the significant tax collections are being dampened by diminishing diamond revenues

Zimbabwe’s largest platinum producer reaches deal to turn over 51 percent to government

Zimbabwe’s largest platinum producer reaches deal to turn over 51 percent to government


By Associated Press, Published: March 13

HARARE, Zimbabwe — Zimbabwe’s biggest platinum producer said Tuesday it has reached an “acceptable” agreement with the government under empowerment laws demanding it yields 51 percent ownership to blacks.

South Africa’s Implats, majority owner of the Zimbabwe producer, said in a statement that the government agreed “in principle” on Tuesday to its proposals for the transfer of a 51 percent shareholding that will be overseen by a joint technical team of experts from both sides.

It said the hand over will be at an “appropriate value.” It was not clear how long the transfer will take.

The announcement ends a tense standoff over Zimbabwe’s threatened takeovers of foreign-controlled businesses and mines.

A Tuesday deadline had been set for the miner to meet “indigenization” laws.

Implats chief executive David Brown said that after lengthy disputes and delays over Zimbabwe’s empowerment laws “essentially we have found each other.

“It is pleasing to submit a plan that complies with the law ... this augurs well for the mining industry,” he told reporters. “It creates some certainty and a more stable investment environment.”

Earlier Tuesday, Zimbabwe empowerment minister Saviour Kasukuwere met with Implats board chairman Khotso Mokele.

Kasukuwere said the miner’s proposals “basically comply” and he agreed that in principle they met Zimbabwe’s expectations.

“We are going to work out details of the transfer later,” he told reporters.

The Implats statement said the platinum producer addressed the minimum requirements of Zimbabwe’s Indigenization and Economic Empowerment Act and other regulations passed over the past two years.

The technical team will be made up of officials of Implats, the empowerment ministry and a state regulatory board on empowerment, it said.

Last year, Zimplats became the first foreign-owned company to cede 10 percent of its holdings to a local community trust. Then it offered another stake of about 10 percent of its mining claims.

But Zimbabwe accused the company of delaying tactics and ordered it to hand over another 30 percent by mid-March. South African-based Implats owns 87 percent of existing shares in Zimplats.

Kasukuwere had said there would be no compromise over taking local control and vowed he would seize the mine and its assets if the owners defaulted on those demands by March 13.

Zimbabwe and South Africa are the world’s largest suppliers of platinum, a corrosion-resistant metal with a wide range of industrial uses that is priced higher than gold.

The former opposition party of Prime Minister Morgan Tsvangirai has cautioned that the prospect of hefty business and mining takeovers scares off much-needed investment.

Foreign cash inflows have dwindled in recent months amid uncertainty over the security of possible investments.

Last year, Kasukuwere announced that he had canceled the Zimplats mining license but backed down after Zimbabwe’s mining minister ruled the cancellation void.

Critics of the empowerment drive point to a possible repetition of land seizures since 2000 that have seen many of the best former white-owned commercial farms allocated to politicians and Mugabe party loyalists who have left them to lie idle.

Zimbabwe, once a regional breadbasket, now relies on imported food.

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Zimbabwe’s inflation still favourable - Gono

Posted on Wednesday 1 February 2012 - 11:00

Zimbabwe's annual headline inflation still compared favourably with economies in the region, Reserve Bank of Zimbabwe Governor Gideon Gono said on Tuesday, adding that the projected stabilisation of international oil prices this year might also help in lessening price pressures.

But Gono expressed worries over the state of the balance of payments, saying it remained “precariously difficult” at a time when growth in manufactured exports was slow while the country had insufficient foreign currency reserves at its disposal to finance the current account deficit.

He said consumer prices remained low and stable in much of last year and at a rate below 5 percent, within the government’s target band.
Inflation rate accelerated to 4.9 percent year-on-year in December 2011, pushed up by higher food and beverage prices as well as second round effects from communication and utility tariffs, according the latest national statistics agency's figures.
“Zimbabwe’s annual headline inflation compares favourably with regional economies and is aligned with the SADC macroeconomic convergence target of 5 percent,” the central bank chief said in a monetary policy statement.
He warned that the country was exposed to external shocks due to the fragile global economy and decried heavy reliance on commodities, adding that the dampening effect of the Eurozone debt crisis on international commodity prices, Diaspora remittances, and capital inflows will likely have a negative impact on Zimbabwe.
“… declines in global activity and commodity prices will have inescapable consequences for the country’s export earnings, and hence its output, incomes, and fiscal revenues. Diaspora remittances and investment flows are likely to weaken, with knock-on effects on domestic demand, banking sector liquidity and loan quality, resulting in more difficult credit conditions."
Zimbabwe has in recent years struggled to finance its yawning current account deficit, estimated at 23.4 percent of gross domestic product (GDP).
Exports and reserves have remained subdued, while the government had to go cap in hand to the International Monetary Fund (IMF) for support only to be snubbed due to non payment of outstanding arrears.

Five Zimbabwe banks risk closure

Five Zimbabwe banks risk closure


(AFP) – 14 hours ago

HARARE — Zimbabwe's central bank said on Wednesday it has given five undercapitalised banks two weeks to raise cash or face closure, after several banks were forced to shut because of the economic crisis.

At the end of last year five of the country's 25 banks did not have the minimum capital required by law, central bank governor Gideon Gono said.

"Accordingly, all non-compliant institutions... have up to 14 February 2012 to finalise their recapitalisation initiatives or consummate their mergers and acquisitions," he said.

Central bank regulations require commercial banks to have a minimum capital of $12 million (nine million euros), while merchant banks must have at least $10 million and asset management companies $500,000.

Three commercial and two merchant banks currently lack the required capital, and one of the merchant banks is under curatorship, or administration.

"By no later than 29 February 2012, the Reserve Bank shall engage those institutions that would have failed to identify credible partners and conclude the recapitalisation transactions," Gono said.

The bank will act by March 31 against the institutions which fail to raise the capital.

Zimbabwe's economy is showing signs of recovery from a nearly decade-long downturn following a power-sharing deal after disputed 2008 polls.

Long-time political rivals President Robert Mugabe and Prime Minister Morgan Tsvangirai currently navigate the shaky unity government.

The economic crisis forced several banks to close while others merged or were placed under curatorship.

Finance minister Tendai Biti has been forced to take steps to slash the shock 25 percent hike of surtax on imports of food and other basics.

Biti admitted at a news conference in Harare yesterday that he had come

under withering pressure from “various stakeholders” after publication of

the new import tariff regime in the January 14 edition of the Daily News.

The new tax regime came into force on January 1, 2012.

The 25 percent surtax was imposed across the entire range of goods from

basics to luxuries, with the new import regime affecting almost everything

from second-hand vehicles to food, even beer and cigarettes.

The new duty regime was announced in the 2012 national budget presented by

Biti to Parliament in November last year as a measure to support increased

domestic production and level the playing field with regards to some of the

imported commodities.

When the new tariff regime was gazetted last week by the Zimbabwe Revenue

Authority, they torched a storm, which has forced the minister into a

dramatic climb-down.

“Concerns have been raised by stakeholders over some of the tariff measures

government implemented from the 1st of January 2012,” Biti told reporters

yesterday.

“Here there are two things. First is the expanse of those tariffs, the

expanse of the goods that are affected by those tariffs, there have been

concerns about those.”

The 25 percent surtax covers literally everything from beauty products to

electrical household appliances such as refrigerators, ovens, cookers and

other reception apparatus for TVs.

The surtax more importantly affects a wide array of basic foodstuffs such as

fresh as well as frozen whole chickens, frozen cuts and offal, milk and

cream, yoghurt, fermented milk, buttermilk, cheese, bird’s eggs, potatoes,

tomatoes, onions and shallots, garlic, carrots and turnips, mixtures of

vegetables, peas, beans, sausages, uncooked pasta, jams, fruit jellies,

marmalades, soup and broth preparations, sweet biscuits, tomato ketchup and

other tomato sauces.

The new regime also affected alcoholic beverages such as malt beer, wine,

ciders, brandy, whiskey, vodka, spirits as well as Virginia flue-cured

tobacco and burley tobacco.

Biti said he had taken heed of concerns from economists and other

stakeholders that the hike will trigger a massive inflation surge and that

it could ignite shortages of basics given depressed local supply side

constraints.

“We have listened to the way they are affecting basic commodities and so

forth,” Biti said.

The tough-talking minister blasted the manner in which the new tariff

measures were being implemented by tax collector Zimra.

“We have women being asked to put on new shoes, bags being opened (at the

border) and so forth. We don’t accept that, it is not the law,” Biti said.

“Public servants, parastatals, have got a duty to respect the public; they

have got a duty to respect citizens of this country. We will not accept

that.”

The inhuman treatment of travellers by Zimra officials at several border

posts including Harare International Airport was exposed by the Daily News

through a series of articles.

Biti admitted there was overwhelming national condemnation of the 25 percent

hike in surtax of second-hand cars and basics.

“Given the huge representations that have been made to us as a ministry, we

have embarked on the process of stakeholder consultation so that we review

or adjust those statutory instruments, the appropriate measures to review,

and some of the measures therefore will be instituted in the next few weeks

or few days if we are lucky,” Biti said.

“But I want to appeal to the Zimbabwe Revenue Authority, I want to appeal to

all government bodies that provides services to the people whether it’s the

passport office, whether it’s the death certificate office, whether its VAT,

the government is there to serve the public, public servants are there to

serve and not to be islands of fascism where we harass people and so forth.

“So we don’t accept what certain officials at the Zimbabwe Revenue Authority

have been doing.”

Biti said he had received several complaints from trans-border traders and

other stakeholders of intrusive searches and other bizarre methods of

enforcing his new regulations at the border.

“That is not the policy of this ministry, that is not the policy of this

government,” he said. “The long and short of it is that we will review and

adjust following a process of consultation. We will make announcements

through the relevant statutory instrument.”

Biti has also introduced a controversial ban of imports of second-hand

underwear that has also attracted massive criticism.