Zim debt dialogue set to continue amid poll ruckus

Zimbabwe’s unfolding political situation has nothing to do with current discussions on the restructuring of the country’s US$18,7 billion external debt, amid reports suggesting that the Western creditors expect to resume negotiations with Harare to resolve the matter soon.

The Southern African country held its harmonised elections on Wednesday last week, which continued on Thursday (August 24) in some areas after polling was delayed by logistical issues, and President Mnangagwa secured another five-year final mandate to govern the country.

His Zanu PF party also won the majority of seats in the House of Assembly ahead of its main rival the Citizens Coalition for Change (CCC) led by lawyer Nelson Chamisa.

While various observer missions have described the elections as generally peaceful, some including the SADC Elections Observer Mission (SEOM) and the European Union (EU), among others, noted that the polls fell short of acceptable regional and international standards governing democratic elections and in some instances failed to meet certain provisions of the Constitution of Zimbabwe.

The CCC, whose president got 44 percent of the presidential ballots, has since rejected the election result and is calling for a re-run. A delegation comprising the SADC Panel of Elders is in the country on a scheduled invitation extended on August 21, 2023, and is assessing the election reports.

European Investment Bank (EIB) head of Southern Africa and Indian Ocean, Jim Hodges, told Bloomberg news agency this week that the lender was primarily focusing on recovering its money.

“EIB participation in the talks aims to recover outstanding debts, and is not an endorsement of any Government,” said Hodges.

“Since the Government is in default, the EIB is currently not pursuing the financial support of any public-sector projects in the country,” he added, stressing that the southern African nation will only be able to re-access “international credit facilities when it repays existing debt, either in full or in part, according to the proposal accepted by the creditors.”

Zimbabwe’s total public and publicly guaranteed debt amounted to US$18 billion, as of the end of December 2022. With part of that amount being in arrears, the Government has struggled to access external loans from international institutions, including the World Bank, with efforts to restructure or reschedule the debts being hampered by sanctions imposed on the country by the United States.

As a result, the Government of Zimbabwe, in December 2022, established a Structured Dialogue Platform (SDP) with all creditors and development partners, to institutionalise structured dialogue on economic and governance reforms to underpin the Arrears Clearance and Debt Resolution process.

The dialogue saw the Government agreeing on reforms, some of which are subject to (holding a free and fair election), and could still find the country in the same place despite efforts made so far.

The reforms are under three main pillars; economic, governance, and tenure reforms.

Zimbabwe defaulted on its loans in 1999, shutting off its access to external lines of credit. As a result, its economy has been hobbled by runaway inflation, which has rendered the domestic currency almost worthless.

President Mnangagwa, last year tapped the African Development Bank’s president, Akinwumi Adesina, and former Mozambique leader Joachim Chissano to lead talks on reorganising the liabilities. Apart from the World Bank, Zimbabwe’s other external creditors include the Paris Club and the African Development Bank.

The two, Dr Adesina and Chissano, have been in and out of Zimbabwe facilitating dialogue and during a meeting in Eygpt recently the lenders warmly accepted the need for Zimbabwe to be freed from the back pack of toxic debt and be accorded fresh and cheap capital. Only American representive provided discord, siting Zimbabwe Democracy and Economic Recovery Act that is still in force that prohibited American representatives from supporting Zimbabwe.

The AfDB and Zimbabwe’s Treasury had both warned that any debt restructuring agreement would be contingent on the elections being free and fair, but most observers found the process was deeply flawed and the opposition rejected the outcome as a “sham”.

The World Bank, which is owed US$1,5 billion by Zimbabwe, told Bloomberg it would continue participating in the talks.

“It is too early to predict the outcome of this engagement,” a spokesperson said. “Zimbabwe has now formally asked the International Monetary Fund for a staff-monitored programme (SMP) that would help underpin its arrears clearance strategy and technical discussions in preparation for an SMP are expected to commence in due course,” the IMF told Bloomberg.

Some local analysts say the issue of the election outcome was “not going to stall the debt resolution” talks since the creditors want to recover their money.

“It really can’t be a precondition because what these creditors really want is a viable plan from Zimbabwe to recover their money,” Harare-based economist Carlos Tadya said.

“But of course, you can’t ignore the factor that the disputed election will hamper Zimbabwe’s re-engagement efforts since it has been widely condemned by some global institutions including the United Nations and the Commonwealth,” Tadya added.

Another economist Maxwell Musara told Business Weekly the creditworthiness of Zimbabwe is likely to be further dented and would make money more expensive for the country.

“Risk tolerant investors; risk tolerant lenders will offer loans or lines of credit at premium rates and this will make capital very expensive for the country, resource mobilisation abroad will remain a challenge.”

In a recent media statement, economist Dr Prosper Chitambara, said the disputed elections would strain economic recovery efforts while urging main political opponents to accept the outcome of work together.

“The controversy generated so far does not put the country’s image in a good light. It will further reinforce the stigmatised tag the nation has. Capital and investment flows will further come under severe threat and while it is easy to create such a mess, it will take very long to cleanse that image on the international front,” said Chitambara.

“In the thick of things, it is very important for contestants to find each other. Whoever is ultimately announced the winner must work harder to bring the nation together. A disputed outcome will affect sustainable economic development.-ebusinessweekly