Zimbabwe creditors receive US$119,4 million in token payments

ZIMBABWE has so far transferred US$119,4 million in token payments to international financial institutions and its Paris Club creditors, as the country seeks to rekindle relations with lenders that had deteriorated due to defaults.
The government resumed making quarterly token payments to creditors in March 2021 as a sign of its commitment to the engagement and re-engagement process.
Treasury said to date, it has made quarterly token payments amounting to US$68 million to the World Bank Group, US$36,4 million to the African Development Bank Group, and US$5,4 million to European Investment Bank. In September 2021, the government started making quarterly token payments amounting to US$100 000 to each of the 16 Paris Club bilateral creditors, and to date, payments amounting to US$9,6 million have been made.
“Development partners have welcomed these token payments, which clearly demonstrates the commitment by the government to the engagement and re-engagement,” Treasury said in the latest Annual Debt Bulletin for the 2022 financial year.
The country remains in debt distress with an unsustainable public and publicly guaranteed external debt overhang amounting to US$18 billion at the end of December 2022. Total public and publicly guaranteed external debt at the end of December 2022, amounted to US$12,83 billion, comprising US$5,89 billion of bilateral debt, US$2,70 billion of multilateral debt and US$4,24 billion of debt contracted by the central bank.
Bilateral and multilateral external debt amounted to US$8,59 billion, with arrears of principal and interest, including penalties amounting to US$6,68 billion.
Multilateral external debt amounted to US$2,697 billion, with arrears and penalties amounting to US$2,47 billion. World Bank debt amounted to US$1,54 billion, African Development Bank debt amounted to US$69 million, the European Investment Bank’s debt stood at US$395 while debt to other multilateral creditors (BADEA, NDF, OPEC and IFAD) amounted to US$64 million.
External debt owed to bilateral creditors amounted to US$5,89 billion as at December 2022. Of this, Paris Club creditors are owed US$3,77 billion, with 97 percent or US$3,67 billion being arrears of principal and interest, including penalties.
Non-Paris Club debt amounted to US$2,13 billion, with 25 percent, or US$527 million, being arrears and penalties.
During the period January to December 2022, Treasury made total external debt service payments, with US$51,17 million made to the active portfolio to unlock disbursements for on-going projects, while US$12,8 million went towards token payments to the international financial institutions and Paris Club creditors.
Authorities in the country are currently intensifying their engagement and re-engagement agenda, including the resolution of the country’s external debt overhang, in a bid to attract affordable external concessional financing, critical for sustainable economic development.
Last year, the government established a structured dialogue platform with its creditors, development partners and other stakeholders to institutionalise structured dialogue on economic and governance reforms to underpin the Arrears Clearance and Debt Resolution process.
The Arrears Clearance, Debt Relief and Restructuring Strategy is being championed by the president of the African Development Bank, Akinwumi Adesina, and supported by the former President of Mozambique, Joaquim Chissano, who is the high-level facilitator of the structured dialogue between the government and international creditors.
Speaking to this publication after the second structured dialogue platform meeting recently, business leaders said Zimbabwe’s intensified plan to tackle its huge debt overhang will be a critical step towards unlocking concessional funding.
The chief executive of the Zimbabwe National Chamber of Commerce (ZNCC), Chris Mugaga, recently said the structured dialogue platform is a positive development for economic growth.
“The major threat to Zimbabwe’s prospects into the future is the debt position, which had been quite usurious and quite more of an albatross. Its impact is ranging from the inability to access new lines of credit to even attracting new lines of credit at very unaffordable rates given that the sovereign risk already attached to Zimbabwe due to its failure to honour its debt obligations had been quite unsustainable,” Mugaga said.
“As industry and commerce, we certainly welcome the whole dialogue and we believe a resolution will be found, which will lead somehow to a solution to the debt position which we are immersed in at the moment. Once Zimbabwe manages to clear its debt, chances are also that it will get the confidence of the international community and it will also be able even domestically to trade some of the instruments, which will allow the central government to raise revenue for example through the monetary policy.”
In an emailed response recently, to The Financial Gazette, Jane Morley, head of sub-Saharan African risk for Fitch Solutions, said she believes that progress on reforms will remain weak.
“We believe that the government will be unlikely to implement the reforms required by the IMF for the restructuring of the country’s debt. These would likely include cuts to public sector wages, improving transparency, fighting corruption, and potentially liberalising the exchange rate,” she said.
Zimbabwe has been unable to meet its debt servicing obligations and has, therefore, been accumulating external debt arrears since 2000.
“As such, we believe that over the medium term, the country’s fiscal and eventual external deficits will keep being funded by loans from the Reserve Bank of Zimbabwe, a trend that will keep fuelling inflationary pressures, and by loans from mainland China,” Morley said.
As part of the debt resolution process, the government is expected to deliver on the policy reforms arising from the three reform matrices of the three-sector working groups: economic reforms, governance issues and commitment to a sustainable land tenure system.
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