Zimbabwe engages France over debts

total debt obligations to Paris Club lending institutions.
He said the Government last week engaged French ambassador to Zimbabwe Mr Francois Ponge to assess the liabilities to the Paris Club lenders.
“We met the ambassador of France to Zimbabwe to come up with a consolidated list of the debt. The amount we owe will be more after applying the component of interest and penalty clauses,” said Minister Biti.
He said the debt was set to rise significantly higher than the current nominal figure of US$7,1 billion when accrued interest and default penalties are factored in.
The bulk of the debts relate to multilateral lenders that are members of the Paris club. Minister Biti said the country started defaulting on its debts in 1999.
By December last year US$4,7 billion was already in arrears. Principal arrears stood at US$4 billion while interest arrears were perched at US$726 million.
The Government since has resolved to set up a debt management office and use a hybrid approach to clear the liabilities constraining foreign investment.
In April 2010 Cabinet agreed to use aspects of the Highly Indebted Poor Countries Initiative and proceeds from minerals to retire the debt not forgiven.
Zimbabwe will not adopt the HIPC initiative in its entirety due to its prescriptive nature, which may result in loss of control over economic policies. Of US$7,1 billion debt Government contracted 57 percent while parastatals and private sector benefited in the contraction of 43 percent of the debt. Zimbabwe hopes to have over 60 percent of its debt forgiven by Paris Club lenders and would settle the balance using its two-pronged debt strategy.
Of the US$7.1 billion liabilities, said Minister Biti-the bulk of which is already in arrears-about US$1.1 billion was contracted by the Reserve Bank of Zimbabwe.
However, more than 90 percent of the debt contracted by the central bank was accrued by administrations prior to the one led by Dr Gideon Gono.
Zimbabwe is battling to free itself from the debt overhang, which has prevented it from accessing low cost funding from international lending institutions.
The country’s failure to secure meaningful affordable lines of credit and foreign direct investment significantly affected business and economic growth.
A decade of economic instability means there is little room to mobilise low cost funding locally and banks took advantage of the crisis to charge high interest on loans.
While industry capacity utilisation has improved to an average 47 percent, according to the Ministry of Finance, lack of funding constrains its potential.
Even the most credit worth companies are borrowing at an average 16 percent for predominantly short-term loans. The longest tenor is for 180-day loans.
Lack of foreign investment means sustained low productivity and incapacity to revamp and develop new infrastructure such as roads, rail and airports.