shloboe boe
Debra Matabvu, Chief Reporter
ZIMBABWE has begun engaging bilateral partners, multilateral institutions and private entities to secure financial resources, guarantees and technical support to clear its arrears with international creditors, it has been learnt.
The authorities are looking to secure at least two sponsors to fund clearance of the country’s arrears ahead of the next round of high-level talks on Zimbabwe’s arrears clearance and debt resolution process, scheduled for later this month.
In an interview with our Harare Bureau, Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube said the sponsors will facilitate the clearance of Zimbabwe’s arrears, which currently stand at approximately US$7,5 billion.
Clearing these arrears is expected to unlock new lines of affordable credit, fostering durable economic growth and development.
According to Treasury’s Public Debt Report, Zimbabwe’s external debt stock stood at US$12,4 billion as of September 2024.
Of this amount, US$6,3 billion is owed to bilateral creditors, while US$3,2 billion is owed to multilateral institutions.
Additionally, the Reserve Bank of Zimbabwe (RBZ) liabilities assumed by Treasury in 2023 amount to US$2,9 billion.
The country’s multilateral debt consists largely of arrears and penalties, which account for US$2,7 billion.
Meanwhile, of the external debt owed to bilateral creditors, arrears and penalties account for US$4,8 billion.
“We are engaging the International Monetary Fund (IMF) full throttle on the staff-monitored programme following our last engagement in December,” said Prof Ncube.
“As we engage the IMF, we are also pursuing high-level engagements, although the exact date is yet to be determined.
“The agenda this time is to go deeper into reforms and targets.
“Additionally, we need to identify financial sponsors for arrears clearance.
“We require substantial bridge financing, which typically involves securing commitments from at least two or three sponsors.
“We have already begun engagements, and hopefully, by the time we meet, we will have firm commitments.”
The Government is working on the IMF Staff-Monitored Programme (SMP), set to be finalised by March this year.
Zimbabwe has been engaging with the IMF and other partners under the SMP to implement reforms and build a track record of sound economic management.
In addition, the Government has engaged financial and legal advisers, including Global Sovereign Advisory and law firm Kepler-Karst, with support from the African Development Bank (AfDB).
These advisers are assisting in formulating strategies to navigate the complex debt landscape.
Despite these efforts, Zimbabwe acknowledges the need for a sponsor to fully support this programme.
Under a sponsor-backed financing arrangement for the arrears clearance, a third party — such as a foreign government, international financial institution or private entity — provides funding or guarantees to help a country meet its debt obligations.
Zimbabwe has opted for a bilateral loan route, where a sponsor extends a loan to clear arrears, in exchange for agreed-upon economic reforms.
Other sponsor-backed financing options include debt restructuring with international institutions, issuing debt bonds with a sponsor and debt-for-development swaps.
Parties to the arrears clearance and debt resolution talks have endorsed a three-pronged strategy to guide Zimbabwe through the arrears clearance and debt resolution programme.
The strategy entails implementation of economic reforms and recalibration of Zimbabwe’s governance systems.
The country has also been asked to commit to compensation of white former commercial farmers for improvements made on farms and resolution of cases of farms covered by Bilateral Investment Promotion and Protection Agreements (BIPPAs) that were affected during the Land Reform Programme.
Prof Ncube said securing sponsors would provide the much-needed economic relief and accelerate development.
“If we secure sponsors, we can complete arrears clearance, lifting major restrictions on our economy,” he said.
“This would ease access to international credit for both the Government and private sector, supporting industrialisation and economic growth.
“Additionally, we could aspire to attain a sovereign credit rating, positioning Zimbabwe alongside other economies in the global financial system.”
Economist Mr Prosper Chitambara described sponsor-backed financing as a flexible and effective debt repayment approach.
“This is a very innovative way of repayment,” he said.
“Although it is not a very popular way of debt repayment, some countries are exploring that option.
“The advantages include negotiating and agreeing on flexible and favourable payment terms.
“So, it helps pay off urgent multilateral debt which is accruing arrears.
“So, this option may be critical in unlocking capital inflows and other investment opportunities into the country.”
In 2022, President Mnangagwa enlisted former Mozambican President Joaquim Chissano and AfDB President Dr Akinwumi Adesina to facilitate Zimbabwe’s arrears clearance, debt resolution and governance reforms in negotiations with creditor nations.
Countries that have successfully used sponsor-backed financial agreements include Greece, Pakistan, Sri Lanka, Zambia and Mozambique.
Greece’s debt crisis, which peaked in 2010, was one of the most severe in modern history.
The country faced unsustainable debt levels, leading to a loss of market access and a sharp economic contraction.
To address this, Greece relied heavily on sponsor-backed financing through bailout programmes facilitated by the European Union, the European Central Bank and the IMF — collectively known as the “Troika”.
Greece received three successive bailout packages totalling over €260 billion between 2010 and 2018.
The sponsors provided loans and guarantees in exchange for stringent austerity measures, structural reforms and fiscal consolidation.
The bailouts helped Greece avoid default, stabilise its economy and gradually return to financial markets.
Meanwhile, Zambia defaulted on its external debt in 2020, becoming the first African country to do so during the Covid-19 pandemic.
The country’s debt crisis was driven by excessive borrowing and falling copper prices, among other factors.
Zambia sought sponsor-backed financing through an IMF extended credit facility of US$1,3 billion approved in 2022.
The programme was supported by debt restructuring agreements with bilateral creditors under the G20 Common Framework, including China, France and other members of the Paris Club.
The sponsors required Zambia to implement reforms, including fiscal consolidation, transparency in debt management and anti-corruption measures.
The sponsor-backed financing has provided Zambia with a pathway to debt sustainability and economic recovery.
The country is working to finalise debt restructuring agreements with private creditors, which will be critical for restoring market confidence.
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