Tuesday, July 30, 2013

(SUNDAY MAIL ZW) Zim secures US$100m loan for debt. . . IMF debt declines to US$123m
Sunday, 14 July 2013 00:00
Darlington Musarurwa Business Editor

Government has made substantial steps to reduce its domestic debt stock, especially the obligations it owes to local service providers, by paying US$100 million sourced from the African Export and Import Bank (Afreximbank) by CBZ towards its bills, it has emerged. The development that is forecast to improve the Government’s debt profile and unlock further funding from financiers.

By December, the Government’s domestic debt had declined to US$211 million from US$277 million that was recorded in September 2012.

Similarly, the country has also been making repayments to international creditors such as the International Monetary Fund (IMF), with the Bretton Woods Institution noting that by the end of March this year Zimbabwe’s arrears to the Poverty Reduction and Growth Trust (PRGT) had shrunk to US$123 million after an US$8,2 million payment made last year.

According to the latest IMF country report on the Staff Monitored Programme (SMP), the domestic debt had created a vicious circle where central Government owed utilities companies for services received, while the companies, in turn, owed taxes to the Zimbabwe Revenue Authority (Zimra).

The overdue obligations are currently owed to “service providers, seed and fertiliser suppliers, and contractors of capital projects”.

Government has, however, since crafted a method of staying current with its utility bills by centrally monitoring the timely payments of monthly bills by various departments and activating demand management measures for services.

“Despite this operation (of repaying overdue bills), some new bills went unpaid in the close of the year, so that as of end of December 2012, the stock of unverified domestic payment arrears had fallen only to US$211 million, of which US$169 million has been verified.

“The authorities are committed to clearing the December 2012 verified arrears by end-2014, and to not accumulate new arrears in 2013. Measures designed to avoid falling behind on payments of utility bills include advising service providers about ministries’ budget resources for utilities, centrally monitoring the timely payments of monthly bills by ministries, and various demand management measures for electricity, telecommunications, transport and water supply,” read part of the report.

There are also plans to ring fence a portion of any diamond revenues realised above the budgeted amount, while the 2014 National Budget will make appropriations designed to clear remaining arrears.

It is believed that by paying its local debts Government will not only relieve itself from a heavy burden but will also be able to generate positive economic spin-offs.

Concerted efforts are also being made to retire the country’s ballooning external debt, which is estimated to have soared to US$10 billion.

Last year, Zimbabwe repaid in excess of US$8,2 million towards the PRGT of the IMF, reducing its arrears to the trust to US$123 million by May this year.
The country’s biggest debts include the US$994,2 million owed to the World Bank Group by May 2013 and US$592,3 million that is due to the African Development Bank as of end of April 2013.

It has become difficult for the country to access credit lines from multilateral financiers because of the growing debt, and where loans have been secured, they have been attracting punitive interest rates as a result of the negative credit rating.

So grave has become the issue of the external debts that the two biggest political parties that will be contesting in the July 31 harmonised polls included the issue in their manifestos.

Zanu-PF, in particular, regards the rising debt as a threat to the country’s economic aspirations over the next five years.
The party insists that part of the US$10 billion debt must be expunged as some of it was accrued from a US$700 million loan extended to the Ian Smith regime as he tried to ward off sanctions from the United Nations after the Unilateral Declaration of Independence (UDI).

It is also contended that Government can leverage on domestic resources mobilised under the ambit of the Indigenisation and Empowerment programme to settle its dues.

Experts argue that if Zimbabwe shrugs off its debt burden it will naturally be able to unlock additional sources of cheap funding from both bilateral and multilateral financiers. The report also notes that in the interim the authorities are committed to seek grants and concessional loans only to fund developmental projects.

Only in exceptional circumstances where resources might be needed to implement critical projects such as water, sanitation, electricity and roads will non-concessional borrowing be made.

But, crucially, measures have been put in place to ensure that additional loans that will be contracted do not worsen an already bad debt position.

For example, Government is going to ensure that any debt contracted from non-concessional borrowing will not exceed 3 percent of Gross Domestic Product (GDP) during the programme period.

“Moreover, before signing any agreement, the authorities have committed to seek assessments from the African Development Bank, the Development Bank of South Africa or the World Bank to ensure that the identified projects will have high economic and social impact .

“The debt management office in the Ministry of Finance, in consultation with the Fund, will assess the financial terms of any external borrowing.

“Nevertheless, staff urges the authorities to refrain from further non-concessional borrowing and avoid selective debt servicing as these may complicate reaching agreement with creditors on a debt-resolution strategy,” explained the report.

Plans are also in the pipeline to ensure that Zimbabwe remains current, with external creditors providing new disbursements.

As such, it is understood that authorities are planning to amortise loans from China Eximbank worth $91,8 million, Afreximbank ($14,5 million), PTA Bank $3,4 million and the Arab Bank for Economic Development in Africa (BADEA) of $600 000 as all these institutions have recently provided resources for infrastructure, trade credits and lines of credit.

However, this year there will be reductions in the PRGT repayments to about $150 000 as local economic conditions continue to deteriorate.

A commitment has also be made to make payments to the World Bank and the African Development Bank.

The country recently came up with a hybrid debt-clearance strategy, the Zimbabwe Accelerated Debt and Development Strategy (ZAADDS), which was approved by the inclusive Government in November 2010. The plan is mainly designed to pursue multiple avenues to retire the country’s debts.

Despite challenges that are confronting the local economy, the IMF says the country’s economy is expected to recover to 5,5 percent driven mainly by the continued expansion in mining.

Inflation is estimated to average 4,3 percent this year.
Government is also targeting a surplus of 0,2 percent of GDP, which translates into a small fiscal buffer and international reserves of $30 million.

Worries continue to linger over the health of local banks as non-performing loans (NPL) continue to rise and also as a number of small banks remain weakly capitalised with poor quality loan portfolios.

It is believed that the level of NPLs is high and unevenly distributed across banks.

By December 2012 NPLs stood at 14 percent from 12 percent six months earlier.

Added the Fund: “The NPL problem is in the worst cases, one of resolving troubled institutions, and in others, one of addressing underlying weaknesses to allow viable banks to gradually reduce NPL ratios through write-offs, work-outs, and growth.

“Sorting out the NPL situation would improve the capacity of the banks to ensure sustainable growth in private sector credit, and enhance financial sector stability. To this end, fund technical assistance has been requested to assist in designing a comprehensive approach to the problem.”

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