Over-indebtedness: Zimbabwe is keen on the HIPC initiative

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The President of the African Development Bank, Dr Akinwumi Adesina and Professor Mthuli Ncube

Zimbabwe’s quest to erase its debt overhang received a major boost this week after African Development Bank President Dr Akinwumi Adesina formally agreed to lead the country’s debt clearance roadmap .

Dr Adesina visited the country earlier this week and announced that he had agreed to President Mnangagwa’s request to “defend” Zimbabwe’s debt and arrears settlement strategy.

This comes at a time of realization that for the country’s strategy of arrears clearance, debt relief and restructuring to succeed, Zimbabwe will need strategic partners and champions within the international community.

Zimbabwe is in debt distress. Official figures put the Southern African country’s public and publicly guaranteed (PPG) external debt at $14.4 billion, as of the end of December 2021.

Independent analysts use an even higher figure of US$20 billion.

Of officially recognized debt, more than US$6.6 billion was outstanding at end-December 2021.

Another $1.5 billion has also come due this year and the indebted country is unable to service the ever-swelling debt.

All it has done is make token payments to global lenders as a sign of its commitment to the process of engagement and re-engagement with the international community.

The government resumed in March 2021 quarterly token payments to the Multilateral Development Banks (MDBs), the World Bank Group ($1 million), the African Development Bank Group ($500,000) and the Bank European investment fund ($100,000). ).

The government also began making quarterly token payments of $100,000 to each of the 16 Paris Club bilateral creditors in September 2021.

The Treasury’s Arrears Clearance, Debt Relief and Restructuring Strategy (ACDRR Strategy) document released in April this year describes over-indebtedness as a serious impediment to the “socio-economic development and transformation agenda”. ” from the country.

However, as has been the case before, a good debt clearance strategy does not guarantee success.

In 2016, Zimbabwe proposed a widely accepted Lima Plan, led by then Minister of Finance and Economic Development, Patrick Chinamasa, but nothing tangible materialized.

Following the entry into force of the new waiver, Prof. Mthuli Ncube, the incumbent Minister of Finance and Economic Development, took it upon himself to explore strategies to wipe out the debt.

Having worked at the African Development Bank, Professor Ncube knows the terrain and knows how to navigate it. His chances of finally nailing down the debt clearance roadmap looked so bright.

In an effort to get the arrears cleared, Minister Ncube held several meetings with all the global lenders, but three years later there has been no real movement towards debt clearance. The Lima Plan has since been abandoned.

Zimbabwe continues to be sidelined by global financiers even during its most vulnerable period.
At the height of the Covid-19 pandemic, the World Bank Group deployed a record US$157 billion to help developing countries address the health, economic and social impacts of the pandemic. Zimbabwe, partly because of its arrears in debt, has been left out in the cold to fight on its own.

About a month ago, the World Bank announced another $2.3 billion facility to help countries in Eastern and Southern Africa increase the resilience of the region’s food systems and their ability to fight climate change. growing food and nutrition insecurity.

Zimbabwe was a perfect candidate having experienced most if not all of the tragedies covered by the facility.

But once again, its debt position with global lenders was a stumbling block. This is where Dr. Adesina comes in.

The African Development Bank, which he heads, is very much aligned with other lenders such as the IMF and the World Bank.

When the World Bank says it cannot lend to Zimbabwe because of its arrears, it lists debts owed to the AfDB as one of its main reasons.
The debt relief and arrears clearance plan will also need to be consistent with the “pari-pasu” treatment of the IFIs, i.e. the clearance of arrears to the World Bank Group and the AfDB.

Public and publicly guaranteed external debt owed to multilateral creditors at end-December 2021 amounted to $2.7 billion, including $1.5 billion owed to the World Bank Group, $711 million to the African Development Bank, $358 million to the European Investment Bank and $66 million to other multilateral creditors.

The country will have to come up with a comprehensive plan to deal with all debts.
What are the options for Zimbabwe?
As Dr. Adesina comes to defend the roadmap for debt and arrears clearance, Zimbabwe already has several options to clear its debts.

The first option that Dr Adesina is about to explore is for Zimbabwe to go through the Heavily Indebted Poor Country (HIPC) route.
The HIPC Initiative was designed to ensure that the world’s poorest countries are not overwhelmed by an unmanageable or unsustainable debt burden. The HIPC Initiative offers maximum debt relief to beneficiary countries.

Eligibility for HIPC, however, is not automatic. According to the Ministry of Finance and Economic Development, there are periods when countries are considered part of the HIPC Initiative.

Currently, HIPC is made up of a group of 39 developing countries with high levels of poverty and over-indebtedness, which are eligible for special assistance from the International Monetary Fund (IMF) and the World Bank. Zimbabwe is not one of these countries.

As part of its ACDRR strategy, Zimbabwe has expressed its willingness to be considered.

“If the HIPC window is utilized, Zimbabwe is keen to participate in the HIPC process to receive maximum debt relief,” the ACDRR strategy reads in part.

However, for Zimbabwe to be eligible would require a modification or an exception granted by the Board of Directors of the International Development Association (IDA) to the eligibility criteria of the HIPC Initiative of the World Bank, for the reclassification of Zimbabwe as an IDA-only country.

The granting of IDA status only to one country is a signal to donors and creditors that a country faces particular development challenges and should be viewed in a different light from other developing countries. In practice, the international aid system allocates additional benefits to countries classified as IDA-only and denies some of these benefits to countries classified otherwise.

For Zimbabwe to be conferred with an IDA-only status, it will also be necessary for the Executive Board of the IMF to grant Zimbabwe rights to the HIPC initiative.

If the HIPC Initiative is not available to Zimbabwe, the second option is a multi-component plan which involves a combination of the use of Zimbabwe’s own resources and concessional bridging loans from bilateral development partners who are willing to channel their surplus resources to support Zimbabwe’s ACDRR strategy.

The process includes Component 1 where Zimbabwe will write off its US$1.4 billion debt to the World Bank Group; component 2 where it clears the 681 million dollars due to the ADB (681 million dollars); and component 3 where it clears the 344 million dollars due to the European Investment Bank.
This will be followed by the clearance of arrears of bilateral creditors, debt relief and restructuring first of Paris Club creditors and finally of non-Paris Club creditors.

The plan will also include the rescheduling of outstanding and disbursed debt maturing after the clearance of arrears as well as the negotiation of a rescheduling with bilateral creditors (Paris Club and non-Paris Club).

The strategy will also include comprehensive negotiations for the restructuring of all outstanding and disbursed (DOD) bilateral debt ($1.5 billion) to include grace periods and longer-term maturities to avoid the accumulation of arrears after the implementation of an arrears clearance strategy.

However, the clearance of arrears to the World Bank Group and the AfDB using some of Zimbabwe’s own resources, including part of the SDRs allocated to it, rests on the firm expectation that new resources will be forthcoming. disbursed by international financial institutions and the international community.

Dr Adesina has work to do Zimbabwe recognizes the need to continue to implement a comprehensive and credible economic reform program guided by the NDS1.

This reform program will need the support of the IMF, the World Bank Group and the AfDB.

However, although the ACDRR strategy appears comprehensive and well thought out, Dr Adesina will still not have it easy as some countries oppose Zimbabwe writing off or restructuring its debts.

The United States of America has in the past sworn that it would not support any plan to settle Zimbabwe’s debt without the reforms demanded in the Zimbabwe Democracy and Economy Act (Zidera).

In 2019, a US Embassy spokeswoman, Stacy Lomba, told local media that some of the key conditions the US is demanding of Zimbabwe include the restoration of the rule of law; free and fair elections; fair, legal and transparent land reform; and the military and national police subordinate to the civilian government. There is, however, no clear definition or set standards that define, for example, what constitutes fair, legal and transparent land reform.

Accordingly, with or without Dr. Adesina, ACDRR’s strategy is fundamentally one of strengthening and pursuing the reform agenda, intensifying re-engagement with all creditors, including the United States, to secure its buy-in and his support. – Weekly business

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