Zim Moves To Clear External Arrears

Zimbabwe will go for the Heavily Indebted Poor Countries (HIPC) Initiative or use own resources and bridging finance as it moves to clear external arrears, the International Monetary Fund (IMF) has said.

The IMF says Zimbabwe is faced with high public and publicly guaranteed external debt burden indicators and external debt overhang. External public and publicly guaranteed debt indicators breach the policy-relevant thresholds over the forecast period under the baseline and the stress tests.

The present value of the external debt-to-GDP ratio is above the 30% threshold until the end of the projection horizon under the baseline and the stress test.

In an Article IV consultation report, IMF said Zimbabwe was confident that its envisaged reengagement with the international community would help to restore debt sustainability.

“The authorities also noted that, in the absence of a comprehensive arrears clearance strategy, Zimbabwe’s debt position would remain in debt distress. To this end, the authorities have formulated an Arrears Clearance, Debt Relief, and Restructuring Strategy. The strategy explores possible debt relief options under both HIPC and non-HIPC scenarios, whereby participating in the HIPC Initiative would allow the authorities to benefit from maximum debt relief,” it said.

The HIPC Initiative was launched in 1996 by the IMF and World Bank, with the aim of ensuring that no poor country faces a debt burden it cannot manage. Since then, the international financial community, including multilateral organisations and governments, have worked together to lower to sustainable levels the external debt burdens of the most heavily indebted poor countries.

IMF said the implementation of a comprehensive reform strategy, accompanied by debt resolution, is critical for Zimbabwe to emerge from its current difficulties.

“Greater official exchange rate flexibility and prudent fiscal and monetary policies are necessary, as are bold structural and governance reforms to restore growth and attract investment. External support and debt relief from the international community would also be necessary to address Zimbabwe’s debt overhang and development needs,” it said.

In his 2022 national budget, Finance minister Mthuli Ncube said the high debt level, compounded by arrears to both multilateral and bilateral creditors, continue to undermine access to concessional resources required for Covid-19 recovery, recapitalisation of industry and investments in critical infrastructure. BusinessTimes