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Zimbabwe Europe Network (ZEN), ZIMCODD and EURODAD call for new approach to Zimbabwe’s debt

19 November 2009

Zimbabwe’s external debt is unsustainable. The country owes over US$5.7 billion to external creditors which represents over 192% of GDP in 2009. US$3.8 billion of this amount is currently in arrears. Recent International Monetary Fund (IMF) analyses predict that this debt will balloon to over US$13.4 billion by 2013. Arrears will account for US$10.4 billion of this. In the Fund’s May 2009 Article IV Consultation, it reported that, “Zimbabwe is in debt distress and will be for over a decade reflecting the initial external debt overhang and sizeable gross financing requirements. Zimbabwe will need sizeable donor support and debt relief.”

At a recent international donor conference in Berlin in October 2009, several donors called for Zimbabwe to be classified as a “Heavily Indebted Poor Country (HIPC). This classification would make the country eligible for substantial debt cancellation under the HIPC Initiative and Multilateral Debt Relief Initiative (MDRI). Zimbabwe’s Finance Minister, Tendai Biti, has also suggested that this approach could help the country secure much-needed new funds from the international financial institutions and other international donors.

This approach however, has generated much criticism from organisations and networks such as ZIMCODD (Zimbabwean Coalition on Debt & Development), AFRODAD (African Network on Debt & Development) and EURODAD.

ZIMCODD’s Rutendo Hadebe has called for a comprehensive audit of the debt rather than the country’s participation in the HIPC Initiative. “There has been much irresponsible lending,” she said. AFRODAD has echoed these views. Ingrid Naess-Holm has suggested that, "Zimbabwe should find other solutions before adopting HIPC. Zimbabwe could qualify as a HIPC, [but] measures such as mandatory privatisation of state enterprises, adopting an economic adjustment programme and other such pre-requisites could be more harmful to the economy.” The HIPC Initiative is a long, fraught process which is tied to a whole range of sometimes controversial macroeconomic policy conditionalities. The average time for completion of the programme has been 6-7 years, i.e. debt cancellation takes a long time. Zimbabwe will also have to meet its external debt service obligations – as a supposed sign of good will – once it starts the initiative which will mean that ironically, there will be a significant increase in the external debt service burden over the short-term (because the country is currently not servicing much of its foreign debt).

EURODAD meanwhile has pointed to concerns over the way the international community approaches the question of multilateral arrears clearance. At the international donors’ conference in Berlin in October, it became clear that international donors intended to adopt an approach similar to that taken in the recent cases of the Democratic Republic of Congo and Liberia.

According to some ‘sacred’ unwritten rules that have no clear justification, international creditors have decided that countries in arrears on their multilateral debt obligations (e.g. to the IMF and World Bank) must first clear these arrears in order to fully reengage with the international community and gain access to much-needed new capital. Multilateral arrears clearance is also required before the country can enter the HIPC Initiative. This approach essentially gives the multilateral lenders so-called “preferred creditor” status even though these institutions have substantial loan-loss reserves.

Zimbabwe clearly cannot afford to devote scarce financial resources to multilateral arrears clearance when it faces critical social challenges such as an unemployment rate of over 95-96% according to Gideon Shoko, Deputy Secretary-General of the Zimbabwe Congress of Trade Unions. “Some workers earn just US$10 per month”, he said. In 2006, Liberia faced similar challenges, i.e. the need to clear over US$1.47 billion in arrears to the multilateral institutions with an annual government budget of just US$81 million at the time. Yet it was forced to token monthly payments of US$50,000 towards its debt with the IMF and World Bank as sign of ‘good-will’.

EURODAD has pointed out that once the international community decides to act on the issue of Zimbabwe’s external debt (which is subject to the significant improvement of political conditions in the country) international donors are likely to devise a plan to extend a mix of grants and loans to Zimbabwe to help pay its arrears to the multilateral institutions. As in the recent case of Liberia, EURODAD argues that arrears clearance operations only serve to feed the coffers of wealthy institutions such as the IMF and World Bank. Worse, where donors do step in to clear a country’s arrears to the multilateral lenders, this is counted as official development assistance even though Zimbabwe never sees a cent. The whole process then allows the international financial institutions to re-lend large sums of money to the country in question crucially tied to IMF and World Bank conditionalities. Add to this the fact that loans extended to Zimbabwe to help clear its multilateral arrears are excluded from the HIPC and MDRI Initiatives (because only debts contracted up to 2004 are cancelled under HIPC and MDRI), then the question quickly becomes, in whose interest are arrears clearance operations? Clearly, the IFIs aren’t complaining.

Some political analysts in the country have argued that there are two possible routes for the country: 1) the HIPC Initiative; 2) the ‘look-East’ option, i.e. to mortgage Zimbabwe’s significant natural resources to emerging lenders which do not exert policy conditionalities on the country. ZIMCODD has stressed that the country’s Finance Minister, Tendai Biti, is pursuing the HIPC Initiative route because of a lack of alternatives and intense pressure to secure some financial resources for the country as quickly as possible. But ZIMCODD advocates instead for a full public audit of the country’s debt burden to assess the (il)legitimacy of the debt. Some analysts have dubbed Zimbabwe as a “Highly Robbed Poor Country” rather than a “Heavily Indebted Poor Country” and have called for the restitution of the country’s stolen assets.

Zimbabwe Europe Network convened its Annual General Assembly in Brussels on 18 October and together, ZEN, ZIMCODD and EURODAD will work on a strategy which aims to secure the best possible outcome for Zimbabwe with respect to its external debt burden.