US$51m loan on hold

By Darlington Musarurwa

January 31 2009

MEASURES calculated to come up with a debt strategy which entails establishing the extent of the country’s debt and its creditors have begun, The Sunday Mail Business has learnt.
The new development comes in the wake of revelations that the debt burden is making it increasingly difficult to access lines of credit.

Sources privy to the goings-on told this paper last week that there are indications that the African Development Bank (AfDB) might not avail the US$51 million loan to power utility Zesa for its key emergency rehabilitation works until the country comes up with a debt strategy.

The new development comes in the wake of revelations that the debt burden is making it increasingly difficult to access lines of credit.

Sources privy to the goings-on told this paper last week that there are indications that the African Development Bank (AfDB) might not avail the US$51 million loan to power utility Zesa for its key emergency rehabilitation works until the country comes up with a debt strategy.

Similarly it is believed that the country will not be able to access funds from international financiers subject to the crafting of the strategy.

Though the 2010 National Budget strongly leans on external financial support, with external developing partners catering for 36 percent or US$810 million of the budgetary expenses, it is feared that failure to access these funds will stall local economic growth.

The Ministry of Finance and the World Bank forecast that the economy will grow by 7 percent this year. Last week’s NECF meeting was attended by Dr Mungai N. Lenneiye of the World Bank country office, Mr Kitibare from the African Development Bank, including representatives from the Ministry of Economic Planning and Investment Promotion.

Informed sources say AfDB and the Work Bank impressed that they will be happy to see the strategy by June.
An official from the NECF said although there was much hype pertaining to the debate surrounding considering declaring the country a Heavily Indebted Poor Country (HIPC) that is being pushed by the finance ministry, international financiers had to consider the reclassification of the country first before any option was explored.

HIPC classification makes the country eligible for debt reduction under the Multilateral Debt Relief Initiative.
“So much has been said about HIPC process. This process happens only after the debt arrears have been cleared through the World Bank cheque payment in the morning and cheque paid back in the evening debt clearance process. The World Bank calls all creditors to the table and requests them not to collect money anymore from Zimbabwe to enable the country to recover. The countries will sign a piece of paper to that effect.

“The HIPC process may only come once the country is in a normal growth process. “This means Sterp (Short Term Economic Recovery Programme) will need to be translated from a recovery mode into a growth mode which the Medium Term Plan, if properly done, should indicate. “Therefore, people are rushing to talk about HIPC before the debt has been cleared. Reclassification starts first,” said the official. He added that the country, through Sterp, is on the right course, but noted that the MTP needs “a lot of rethink” in terms of institutional reforms.

Added the official: “There will be a need to check if the formal Sterp II is on course and that there is policy consistency.
“After that, Ministry of Finance will then be in a position to engage its international co-operating partners through the Country Executive Director at the World Bank for the reclassification of the country from a middle income to a low income country to begin with.“With reclassification, the country then qualifies to borrow on concessionary terms or access grants or interest-free loans.

Any country with a per capita below US$1 135 is below middle income and qualifies for social protection. Zimbabwe’s per capita today is at US$300, way off the US$1 135. “If the country is serious about debt strategy, Ministry of Finance, once it has done its homework, including the internal indicator systems, can contact formally the World Bank for reclassification, which process is merely desk work which takes about a week at most.

“Once this is confirmed, the World Bank, working on a recovery basis, will start to disburse a pre-arrears grant of US$15 million per capita for such areas as power generation and infrastructure.”

Furthermore, the procurement and monitoring systems will also need to be put in place after having gone through an evaluation process before disbursement. A fortnight ago African Development Bank (AfDB) vice-president (operations) Mr Aloysius Uche Ordo visited the country for the ostensible purpose of urging the country to develop a debt strategy as a first step to access lines of credit.

It is believed that a commitment has been made by the Government to repay US$1,3 billion of the debt by year-end.
However, advocacy groups such as the Zimbabwe Coalition on Debt and Development (Zimcodd) state that there is urgent need for a debt audit to separate legitimate debts from odius debts.

Odious debts are defined as national debts incurred by a regime for purposes that do not serve the best interests of the country.If such obligations are discovered, the country is not obliged to service them. Africa’s over US$200 billion debt burden is the single biggest obstacle to the continent’s development. Most of this debt is illegitimate, having been incurred by despotic and unrepresentative regimes.

After independence, Zimbabwe inherited a staggering US$700 million debt from the Ian Smith regime, which some analysts contend needs to be closely examined. It has been increasingly difficult for the treasury to raise money from the domestic market due to liquidity constraints and low savings that are below 10 percent. The advent of the multi-currency system has also meant that businesses have had to restart.

Debate is, however, still raging on whether the country can actually reclassify itself as a HIPC country, but few alternatives have been proffered on how to escape the debt trap (Sunday Mail)