New debt strategy mooted

By Golden Sibanda
ZIMBABWE should leverage on its mineral resources as part of a two-pronged approach to retiring its US$6,9 billion debt, a Cabinet minister has said.
But the natural resource-based debts settlement approach would be complemented with the best aspects of the Highly Indebted Poor Countries (HIPC) initiative.
Economic Planning and Investment Promotion Minister Tapiwa Mashakada told the CEO Africa Roundtable in Nyanga last week that sustainable debt management was a critical factor to achieve a US$100 billion economy by 2030.
This was the theme of the Nyanga conference.
Mr Mashakada said Zimbabwe should adopt both the HIPC strategy and leverage its resources to retire the debt.
In that respect, Affirmative Action Group president Mr Supa Mandiwanzira said the country should not just “surrender its minerals for a pittance”.
He said Zimbabwe was selling mineral claims for a song, yet they were worth many times more.
But Minister Mashakada said the national debt was a major constraint to sustainable economic development and inhibited access to credit.
“The debt is both domestic and foreign,” he said. “We have to retire the debt. As we move frontiers, there will be leakages. There is need for sustainable debt management. We need to implement the debt service strategies.”
Of Zimbabwe’s US$6,9 billion debt, 36 percent is owed to multilateral creditors, 33 percent to bilateral creditors and 31 percent to commercial creditors.
About US$4,7 billion of the huge debt stock is already in arrears.
The debts, as at December 31 2010, represented 103 percent of the Gross Domestic Product. The internationally accepted debt ratio is 60 percent of GDP.
Minister Mashakada said the country would adopt the best aspects of HIPC and combine them with natural resource-based strategies for a hybrid approach.
The minister said while adopting the best aspects of HIPC was the key strategy, the country needed to rely on its vast mineral wealth.
But there have been contentions in Government over the use of HIPC strategy to retire the huge debt as that would mean Zimbabwe surrendering its economy to the whims of its Western detractors.
“Concerns on the HIPC were that when you go the HIPC way it’s like surrendering and saying we are poor and someone has to manage your economy,” said Minister Mashakada.
He said the hybrid approach was already the Government position as Cabinet had approved the debt-settling approach.
The approach would be implemented under an economic programme agreed by all Zimbabweans, which also guaranteed resource availability to clear the debt.
“In future debt contraction there is need for consultations and that is the reason why the Ministry of Finance has established a debt management office,” he said.
HIPC is designed to reduce the multilateral, bilateral and commercial debt of poor countries over a period of about six years to a sustainable level, a level at which the country is considered able to make debt payments.
The criterion is strict, but if a country qualifies, it can get a 67 percent reduction of a portion of its outstanding debt (from bilateral creditors) and up to 80 percent under the HIPC initiative.
Minister Mashakada said that for sustainable economic development, Zimbabwe would definitely need to reintroduce a domestic currency.
He said this would, however, have to be done when the economy had recovered.
Minister Mashakada said he did not see how the country could achieve a US$100 billion economy by 2030 using foreign currency and considering the current liquidity crisis pervading the entire local economy.
He also said there was need to attract more foreign direct investment, as the country had no capital to support economic growth. FDI has plunged over the years from US$444 million in 1998 to US$60 million in 2009.
But he said the Diaspora could provide a more affordable and sustainable source of investment capital as happened in Taiwan and Singapore.
Meanwhile, the Bulgarian government yesterday announced that it had decided to waive US$6,3 million, or 77 percent, of Soviet-era Zimbabwean debt and transform it into development aid.
According to a draft agreement between the two countries to be signed later this year, Zimbabwe would repay US$1,886 million in four instalments.
Zimbabwe’s US$8,2 million debt, which has not been serviced in the past 20 years, was accumulated before the collapse of the communist regime in Bulgaria in 1990, in return for arms, construction of roads and factories and technical aid.