Zimbabwe is being forced into a corner by the refusal of multilateral lenders to lend the country more money as the nation faces economic meltdown, according to a Bloomberg report quoting a top treasury official.
“It’s very difficult to run the economy without any external support,” George Guvamatanga, the Ministry of Finance and Economic Development secretary, said in an interview.
“You need a buffer to support you and without
it that’s where the temptation to print money comes.”
According to the Bloomberg report Zimbabwe is being shunned by multilateral lenders since defaulting on payments in 1999.
The southern African country still owes US$7,66 billion to various international financial institutions, including the World Bank, the European Investment Bank, the Paris Club and the African Development Bank.
As a result, according to the report, it’s been excluded from official bailouts and debt relief extended to other countries in the wake of the pandemic, relying largely on grants from donors to deal with the subsequent health crisis.
Neighbouring South Africa got an approval for a US$4,3 billion loan from the IMF, while Mozambique got US$309 million to help manage the impact of the coronavirus.
Litany of woes
Still, Zimbabwe’s woes were legion even before the pandemic struck. The economy faced persistent shortages of foreign currency, fuel and
Rampant inflation, which reached 837 percent in July 2020 and a local currency that has imploded since being re-introduced last year.
The local currency is trading at a ratio of 83 to 1 against the US dollar.
Debt relief was reportedly a cornerstone of Finance Minister Mthuli Ncube’s strategy to kickstart the economy. But his plan immediately stumbled when the Paris Club, a group that represents creditor nations including members of the Organisation for Economic Co-operation and Development, said the country first needed to improve its human rights record and pay outstanding arrears.
“Its been a frustrating exercise; you tick off items on the list and then you get given a new list,” Guvamatanga said of Government attempts to re-enlist financial support.
“Most of our engagement is around technical support. We would want to push it beyond that.”
The World Bank said its position on Zimbabwe “had not changed” and the country remained ineligible for direct financial assistance.
“Support to countries like Zimbabwe that are not current on their debt service can only be provided through trust funds, with allocations managed and programmes implemented primarily through our technical assistance programmes,” a spokesman for the Washington-based lender said in an emailed response to Bloomberg’s questions.
The International Monetary Fund said although the country was in good standing with the institution, it had unsustainable debt and long-standing arrears to official creditors.
“The economy is in the middle of a crisis, with high inflation and approximately half the population food insecure,” a spokesman said in an emailed reply to Bloomberg’s questions.
“Any potential IMF financing arrangement would require clearance of arrears to other international financial institutions and bilateral creditors. These prerequisites for financial assistance are long-standing, although the current juncture exacerbates the macroeconomic challenges.”
Still, Guvamatanga insists that Treasury has met all the agreed economic benchmarks and this was enough for the lenders to reconsider their stance.
“Some of the effects of policy are not immediate,” he said.
“There is definitely a lag time and for some policies it will take time for them to be felt on the ground by citizens.”
The Government was living within its means, has no overdraft with the central bank and recorded a surplus of $800 million (US$9,6 million) in the six months through June.
Under his watch, Government departments had “learned that ‘no’ is also an answer they could receive, ” Guvamatanga reportedly said. — Bloomberg/Business Writer.