Maravi

(TALKZIMBABWE) Zim re-engagement with IMF crucial to debt relief

Zim re-engagement with IMF crucial to debt relief
Comment
Thu, 02 Jul 2009 12:11:00 +0000

A DEBT write-off promised to Zimbabwe by France will depend on the outcome of the ongoing meetings between Zimbabwe and the Bretton Woods institutions, the International Monetary Fund (IMF) and the World Bank.

France recently undertook to write off Zimbabwe’s debt during a visit to that country by Prime Minister Morgan Tsvangirai. The debt would be re-directed towards Zimbabwe’s development, France said.

France also indicated that this would be done through the Paris Club framework, and this is only feasible if country re-establishes stand-by arrangements with the Bretton Woods twins, which last week said Zimbabwe had to pay up all outstanding arrears to creditor countries.

Zimbabwe will find it difficult to negotiate any debt rescheduling or relief with international financiers in the absence of a stand-by arrangement with the IMF.

Debt rescheduling is normally negotiated through the Paris Club, an informal group of financial officials from 19 of the world's richest countries, which provides financial services such as debt restructuring, debt relief, and debt cancellation to indebted countries and their creditors.

Debtors are often recommended by the International Monetary Fund after alternative solutions have failed.

Zimbabwe has experienced enormous challenges in settling its outstanding debts with international financiers, including Paris Club members, due to a severe economic crisis over the past decade.

The sanctions regime imposed by the West has made it difficult for the country to achieve productivity levels required to bring in sufficient foreign currency to pay off or service its debts.

The IMF has insisted it will only resume lending to Zimbabwe if the country pays up all its debts to the fund as well as to other international financial institutions and donor countries.

The country’s external debt stock stood at US$4,69 billion as at December 31, 2009, representing a 1,8 percent increase from US$4,61 billion recorded in December 2007.

The increase largely reflected the capitalisation of interest on the external debt stock, as well as a loan from China to finance the importation of agro inputs.

Zimbabwe’s total debt to Paris Club countries amounts to over US$2 billion, according to a debt schedule recently published by the Paris Club.

To be able to pay off this huge debt, the country needs access to two frameworks of the Paris Club: the Heavily Indebted Poor Countries initiative (HIPC) and the Multilateral Debt Relief Initiative (MDRI).

Zimbabwe’s neighbours — Zambia and Mozambique — recently benefitted from debt rescheduling and cancellations under the Paris Club arrangement.

Zimbabwe was skipped because of an absence of an IMF programme.

Foreign aid and debt relief are crucial at this time of financial and economic crisis, especially for Least Developed Countries (LDCs) like Zimbabwe.

Although that is not a sine-qua-non for development, Zimbabwe will have to find new ways of servicing its external debt and re-engaging international financial institutions.

It is therefore crucial to re-engage the IMF in an effort to re-schedule Zimbabwe's debt or for any debt to be wiped off, but for Zimbabwe to develop other Government initiatives should run concurrently with such re-engagement.

Itayi Garande
itayig@hotmail.com

Labels: DEBT, IMF

posted by MrK @ 4:09 PM