Saturday, June 09, 2012
Friday, 08 June 2012 12:00
Tawanda Musarurwa Business Reporter
ZIMBABWE’S arrears to the African Development Bank will be cleared under the Fragile States Facility, Reserve Bank of Zimbabwe Governor Dr Gideon Gono has said. The country owes the regional financier around US$510 million.
The FSF was established as an operationally autonomous special purpose entity within the AfDB to provide eligible fragile states with clearance of arrears for eligible countries.
The facility also provides technical assistance and capacity building support in an effort to contribute to accelerated state building and supplemental grant resources to support post-conflict states in their rehabilitation and reconstruction efforts.
Zimbabwe is one of the targeted beneficiaries of the FSF, and is listed as one of the “moderated fragile states”.
Commenting on the country’s Zimbabwe Accelerated Arrears Clearance, Debt and Development Strategy (ZAADDS), a strategy to fight the country’s external debt overhang which is estimated at over US$8 billion, Dr Gono said the country was able to meet the requirements of the FSF.
“Under this facility, Zimbabwe would be required to meet up to one-third of its arrears clearance obligations, while the remaining two-thirds of the required financing would be provided through the FSF.
“Zimbabwe is already on course towards fulfilling the preconditions for accessing financing under the FSF,” he said.
The key preconditions for accessing FSF funds include commitment to consolidating peace and security, a demonstration of the unmet social and economic needs, a track record of sound macro-economic and financial management reforms, respect of the preferred credit status of the AfDB group and eligibility for traditional debt relief.
The use of the AfDB’s FSF is one of the mechanics of the ZAADDS through which the country plans to re-engage with its respective multilateral, bilateral and commercial creditors.
Dr Gono said the re-engagement of bilateral creditors would be done primarily through the Paris Club, while the other official and non-Paris Club creditors members will be dealt with individually.
In terms of re-engagement with the Paris Club Creditors, the RBZ Governor said Zimbabwe would seek debt relief from the Paris Club under the Naples terms to clear its arrears to the Paris Club Creditors amounting to US$2,1 billion.
Under the Naples terms, the Paris Club creditors may write off up to 67 percent of the total outstanding debt stock and reschedule the balance over several years.
The Naples terms are applicable to countries whose Gross National Income per capita is less than US$500, and Zimbabwe qualifies since its GNI per capita is currently around US$340.
Dr Gono also added that the country is at an advanced stage towards entering a staff-monitored programme with the International Monetary Fund, which is a critical step towards re-engagement with the Paris Club creditors.
In terms of the ZAADDS strategy to re-engage with the IMF, the country is expected to secure resources from other development partners at concessional terms and deploy them towards clearing arrears to the IMF. Currently, the country is unable to pay off the overdue amount using its own resources.
Zimbabwe still owes the IMF about US$140 million contracted under the Extended Credit Facility.
The Government has since declined to settle its arrears with the institution under the Highly Indebted Poor Country strategy.
In terms of re-engagement with the World Bank, Dr Gono explained that the ZAADDS strategy proffers two options that the country can pursue.
The first option involves utilising the World Bank’s soft credit window, the International Development Association, to clear 15 percent of Zimbabwe’s arrears to the
World Bank Group, under the IDA15 replenishment arrangements. On the other hand, the World Bank can provide an Exceptional Arrears Clearance Grant under which a bridging loan can be provided by development partners and repaid with the proceeds of the IDA Development Policy Co-operation.
Dr Gono also said the Government would negotiate for a bridging loan or grant for the clearance of the European Investment Bank arrears. The idea is to repay the loan through proceeds of financing facilities from the international financial institutions.
Meanwhile, the Government is finally going to take an active approach in dealing with the issue of securitising the country’s vast mineral resources as part of the ZAADDS strategy.
Such players as the Confederation of Zimbabwe Industries, whose members are in dire need of effective sources of funding, have made calls for mineral securitisation.
“The policies enunciated in ZAADDS are at variance with the HIPC initiative as it leverages on the country’s natural resources for sustainable economic development,” said Dr Gono.