The Herald (Harare)

24 July 2012

Zimbabwe: IMF Ponders Zim Debt Write-Off

ZIMBABWE is moving closer to concluding a debt write-off agreement with the International Monetary Fund with agreement on the issue likely to be reached in September this year.

Professor Ashok Chakravarti, a consultant in the Ministry of Finance's debt office, said engagements with the IMF had been productive and the next meeting could conclude the matter.

An IMF team was in the country last month for the routine Article IV consultations, during which debt relief was also discussed. Zimbabwe has an external debt of almost US$8 billion that it has been struggling to service.

Professor Chakravarti said he was confident of a positive outcome from the next meeting scheduled to take place in the US. He was addressing the Institute of Bankers Winter Banking School that ended in Nyanga at the weekend.

"If the discussions in the next meeting to be held in September go well, Zimbabwe's debt could be written off," he said.

According to Reserve Bank of Zimbabwe Governor Dr Gideon Gono the debt stands at about US$10 billion.

It is owed to multilateral and bilateral financial institutions, mainly the IMF, the World Bank, the African Development Bank and a number of Paris Club financial institutions.

Zimbabwe has developed a debt resolution mechanism known as the Zimbabwe Accelerated Arrears and Debt Settlement programme.

Professor Chakravarti said Zimbabwe's debt situation was not as serious as it had been portrayed, compared with the heavily indebted countries such as Portugal, Italy, Greece and Spain. He said the country faced challenges in efforts to rid itself of the debt overhang becauseit had not "played the game" in the same way Zambia "played" it to secure its debt write-off.

Zambia had a US$4 billion debt relief and received aid assistance several times, despite failing to meet debt-relief conditions. Judging from Zambia's experience, said Professor Chakravarti, it was very possible for Zimbabwe to secure the debt write-off.

Prof Chakravarti said Zimbabwe's debt situation was insignificant, compared with to Greece's US$433 billion. The Eurozone wrote off about half of that amount while Greece also received a US$172 billion dose meant to help clear the balance. The World Bank recently approved the largest debt write-off for the Democratic Republic of Congo, which saw the IMF follow suit.

Debt relief from the IMF will total US$491 million and from the World Bank's IDA US$1,8 billion, with the remainder expected to come from bilateral and commercial creditors. The development is expected to generate total debt service savings of US$12,3 billion including US$11,1 billion under the enhanced Heavily Indebted Poor Countries Initiative, and US$1,2 billion under the Multilateral Debt Relief Initiative.

It is expected that once the country has cleared its debts to the international and bilateral financial institutions, the floodgates of lines of credit would be reopened.

Prof Chakravarti dismissed the assertion that the country was failing to obtain lines of credit due to the debt overhang, but said clearing the debt mirrored the country in good light. He said Zimbabwe should consider using the South African rand as its dominant currency under the multicurrency monetary regime.

He said South Africa was Zimbabwe's biggest trading partner, which meant that the local economy responded to economic developments in its Southern neighbour.

"If we are going to have the multicurrency, then the dominant currency should be the rand, not the US dollar," he said.

Local businesses have felt the impact of a depreciating rand, which made local products more expensive than South African ones.

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