Ndamu Sandu
27 June 2009
IN another blow to the country's reconstruction programme, three leading financiers have said Zimbabwe's inability to pay its arrears means that it cannot get more funds from lenders.
Zimbabwe urgently requires US$10 billion to kick-start the economy following the formation of the inclusive government in February.
In a joint note by the International Monetary Fund (IMF), World Bank and African Development Bank (AfDB), the three institutions set tough conditions for the re-engagement process to start, chief among them the clearing of arrears to the lenders and other official creditors.
As at the end of May, Zimbabwe owed IMF US$138 million and World Bank (US$676 million). It also owed African Development Bank US$438 million as at the end of April.
The joint note said the process of re-engagement with Zimbabwe will require close co-ordination among all official creditors and was likely to involve raising resources beyond those currently existing within International Financial Institutions.
"Given the interdependence of creditors' processes and requirements (including financing assurances) the willingness and ability of all creditors to move in tandem will heavily influence the pace of re-engagement," the note said.
The joint note, obtained from Washington last week, shows the operational and legal elements for re-engagement with Zimbabwe.
The three institutions said they cannot avail resources to Zimbabwe except limited grants due to the country's inability to repay its arrears.
They said Zimbabwe does not have a track record of sound policies and that there are significant external financing gaps that needed to be filled through concerted donor efforts.
The note said Zimbabwe's arrears to IMF could be settled through a bridge loan in the context of a Fund financial arrangement with a track record of sound policies and assurances that arrears to other official creditors are cleared, or programmed to be cleared.
It said the suspension of Zimbabwe's voting and related rights needed to be lifted before a Fund-supported programme involving the use of IMF resources could be in place but said it needed a decision of the Board adopted by 70% majority of the total voting power.
IMF imposed stopped lending to Zimbabwe in 2001 due to the country's arrears to the General Resources Account (GRA). The arrears have now been settled although Zimbabwe still owes IMF under the Poverty Reduction and Growth Facility (PRGF).
Notwithstanding the clearing of GRA arrears, the IMF maintained non-lending status saying Zimbabwe had exchange restrictions and also breached rules on reporting of international reserves data.
Zimbabwe needs to convince the IMF on its capacity to repay as well as the availability of other programme financing, the joint note said.
"These issues may become particularly salient given the uncertainties regarding the estimated financing gap under a future programme and given unconfirmed rumours that Zimbabwe might have pledged some export receipts as collateral for financing it has received," it said.
For the World Bank to support Zimbabwe, the country has to first clear the arrears to the bank as well as to other creditors.
Before a country indicates a willingness to begin the re-engagement process, the Bank can only provide limited grant support.
World Bank has already provided such support to Zimbabwe and is in the process of proving more (from the State and Peace Building Fund) which could be channelled with resources from other donors through the Multi-Donor Trust Fund for Zimbabwe.
The joint note said the key step in the re-engagement process is the full clearance of arrears saying that financing is sought in the first instance from the government and bilateral donors.
The joint note said that while the AfDB group does not have internal resources to clear Zimbabwe's arrears, it could utilise instruments of the existing Fragile State Facility (FSF) for the country's arrears clearance operation once Zimbabwe's eligibility for the resources, beyond technical assistance, is approved by the Board of Directors.
Through the FSF, AfDB is able to provide arrears clearance grants to eligible countries that meet a set of political and economic requirements.
The requirements include a commitment to consolidating peace and security; unmet social and economic needs as evidenced by significant contractions of Gross Domestic Product; and have respected the preferred creditor status of the AfDB group among others.
Zimbabwe's eligibility to the FSF will be the determination by IMF and World Bank's on the country's HIPC eligibility.
The FSF requires that its arrears clearance programmes are closely co-ordinated with those of other partners such as IMF and World Bank.
"Should Zimbabwe be declared eligible to HIPC and to the FSF, the FSF could bear at least 67% of the clearance of the arrears of Zimbabwe to the AfDB Group based on the Zimbabwe's capacity to pay and subject to the availability of sufficient FSF resources," the note said.
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