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The staff-monitored programme is a key component of the Zimbabwe Accelerated Arrears Clearance, Debt and Development Strategy and Zimbabwe Accelerated Re-engagement Economic Programme.
Finance Minister Tendai Biti and Reserve Bank of Zimbabwe Dr Gideon Gono last Friday signed a letter of intent, a Memorandum of Understanding on Financial Policy and on Technical Support that will pave way for a staff-monitored programme in Zimbabwe. This was after the Chief Secretary to the President and Cabinet, Dr Misheck Sibanda, had submitted the final documents to the IMF.
“This programme is about showing that Zimbabwe can be trusted again. It is about cleaning ourselves so that the international financiers can cancel some of our debts,” Minister Biti told journalists last Friday.
Minister Biti said for this to happen, the country needed a “stamp of approval” from the IMF adding that “we engaged with the IMF on our terms”.
He said the staff-monitored programme would help monitor the country’s economic data, transparency in diamonds earnings and whether the country was able to meet its macro-economic targets such as inflation.
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Dr Gono said the process had not been “easy” and required “a lot of diplomacy.” In 2012, Zimbabwe unveiled a debt resolution strategy to unlock external financing for economic development.
The country’s huge external debt is impeding economic recovery as it is blocking capital for infrastructure and economic programmes. Zimbabwe requires about US$14 billion to fund various infrastructural projects. The strategy involves stricter debt management through a debt management office, creation of database validation and reconciliation with all creditors, negotiating arrears’ clearance and a relief plan.
It also includes re-engagement with the international community for normalisation of relations, removal of sanctions and leveraging resources.
Zimbabwe owes the Paris Club about US$3,5 billion, the World Bank US$2 billion, African Development Bank US$600 million and IMF US$200 million. Zimbabwe’s huge debt liability is largely a result of the country’s economic instability over the decade to 2008, which constrained its capacity to repay.
The sovereign debt has ripple effects such as reduction in Government expenditure which can cause stagnation of the economy, as in Zimbabwe case. From time to time, the Government has been making some contributions to creditors although they fell short of expectations.
This results in national pressing requirements such as infrastructure being scarified. The debt overhang has over the years constrained both Government and industry to attract both foreign direct investment and borrow money from multilateral institutions due to the country’s high credit risk profile. The worst case scenario if this debt problem continues without being addressed as a country may be booted out of the financial institutions like what almost happened in 2003.
The implication of this is that without IMF and World Bank membership Zimbabwe find it difficult to borrow as the two Bretton Woods institutions are considered “international commissioners of oath”.
Online Reporter