Government has abandoned its plan to access a debt relief facility under the Highly Indebted Poor Countries (HIPC) initiative, meant to resolve its unsustainable debt, Business Times can report.
HIPC could have seen Zimbabwe’s unsustainable debt with international financial institutions cancelled.
The latest development was revealed by the permanent secretary in the Ministry of Finance and Economic Development, George Guvamatanga on Tuesday this week.
He said the government was now working on a new strategy to clear its debts.
“The strategy we are pursuing now does not consider HIPC. I think it is a hybrid strategy which we think is fit for purpose,” Guvamatanga told Business Times on the sidelines of the European Investment Bank and First Capital Bank event in the capital on Tuesday.
He added: “We have identified a champion (believed to be a regional bank) to support us. An announcement will be made in due course.”
Government has been engaging several potential sponsors to access bridging finance to expunge its debt and arrears clearance programme.
Guvamatanga’s remarks came after Finance and Economic Development Minister, Mthuli Ncube a few weeks ago said the government was seriously considering HIPC as an option open to Zimbabwe.
The International Monetary Fund and the World Bank launched HIPC in the early 90s to help countries unable to pay their debts.
African Development Bank Group (AfDB) president Akinwumi Adesina said last week that the bank was assisting the government to come up with an arrears clearance plan as it is in “everyone’s interest to have a revived and energised Zimbabwe”.
He said AfDB was working with its shareholders and bilateral partners such as the IMF and the World Bank to help Zimbabwe extricate itself from the debt the same way they had assisted Sudan and Somalia.
“So we are committed as that bank to that. We will walk with our partners. We will walk with the World Bank. We will walk with the IMF, we will walk with all the bilateral partners. My vice president [Yacin Fal] just went there,” Adesina said.
“I have written to the President of Zimbabwe that I humbly accept what you requested me to champion as the vice president said the arrears clearance and I know that with the understanding and the support of our partners we will get there soon.”
Zimbabwe’s consolidated debt stood at US$19bn at the end of March this year.
Guvamatanga, however, said the government was making token payments to all creditors.
The unsustainable debt has contributed significantly to the crisis facing Zimbabwe, which is in debt distress. The crisis is likely to worsen if the government fails to act.
In 2015, Zimbabwe made an attempt to clear its debt arrears under the Lima Strategy.
The Lima plan was premised on a non-HIPC debt resolution strategy designed to clear debt Arrears amounting to US$1.8bn owed to the World Bank Group and the African Development Bank after which the government would commence negotiations towards a resolution with the Paris Club.
Zimbabwe has already cleared its overdue obligation to the IMF in October 2016.
However, the country cannot acquire new debt from the international financial institutions and other creditors until they clear all the arrears they owe to other creditors such as the World Bank, the African Development Bank and the Paris Club.
The rising debt burden is a concern for lenders and the broader international community.
In terms of composition by creditor, according to official data obtained from the Ministry of Finance and Economic Development, 44% of external debt is owed to Paris Club creditors, 31% to multilateral creditors, 20% to non-partisan creditors and 5% to bilateral creditors.
Failure to meet international debt payment obligations has left the country out of the international financial markets.
This implies that the country can only tap into domestic savings for borrowing which seriously limits investment opportunities at a time when the country requires financial resources in line with its aspirations of becoming a middle-income country by 2030.
While tapping into the domestic debt market provides a sound alternative and does not expose the country to foreign exchange risk, it has the potential to crowd out private sector borrowing, thus hampering investment and output growth.