ZIMBABWE hopes to reach an agreement by June next year with international creditors over its debt repayment obligations as it moves to unlock funding, the Financial Gazette’s Companies & Market has established.

The development comes after government last month restructured foreign debts owed to three multilateral institutions — the International Monetary Fund (IMF), the World Bank (WB) and the African Development Bank (AfDB).

The country’s failure to settle its debts with international creditors had made it a pariah in international capital markets, a situation which resulted in the country facing a dire situation as liquidity conditions tightened because of inadequate external inflows.

Resolving the country’s external debt arrears, which government stopped servicing in the early 90s, is seen as a crucial step in the country’s efforts to re-engage with international creditors which would allow it access to offshore credit lines.

An executive at the Reserve Bank of Zimbabwe (RBZ), Simon Nyarota, last week disclosed the plan to engage international creditors by June next year.

“We are going to restructure loan arrears from the IMF, WB and AfDB and by April next year, we should have cleared the arrears,” said Nyarota.

“Then, by June 2016, we are going to engage other creditors, such as the European Investment Bank, Paris Club and non-Paris Club members. We want to reduce the country’s debt, estimated at US$10 billion and reduce poverty in the country,” he said.

“Local banks are not lending much to individuals and corporates at the moment because of the high non performing loans in the banking system. However, we have taken away the toxic asset to clean the banks’ balance sheet.”

He was hereby referring to the establishment of ZAMCO, which was mandated by the RBZ to buy non performing loans from banks.

The Paris Club is an informal grouping of creditor governments from major industrialised countries. Most of them are influential members of the IMF board that consult regularly on issues including loan restructuring and debt cancellation, particularly for heavily indebted poor countries.

Under the Paris Club rules, a debtor country must first clear its arrears with international financial institutions before it can negotiate with creditor countries.

The most significant breakthrough in terms of Zimbabwe’s external debt came after government presented its debt clearance strategy to the IMF, WB and the AfDB in Lima, Peru last month.

The strategy has since been accepted, meaning that government has to clear its debt arrears to the three institutions amounting to about US$2,6 billion by April next year.

Total arrears, estimated at US$5,528 billion, are still growing due to failure to service the debt.

Zimbabwe owes IMF about US$110 million in debt arrears, while the WB and the AfDB are owed US$1,5 billion and US$601 million respectively.

These arrears, according to Nyarota, would be cleared through bridging finance, medium to long-term finance and loans from other countries.

Zimbabwe’s economic situation has been deteriorating as evidenced by declining industrial capacity utilisation, company closures and retrenchments.

This has been compounded by lack of foreign direct investment and tight liquidity.

Finance Minister, Patrick Chinamasa, revised his growth projections for the current year to 1,5 percent, from an initial projection of 3,2 percent.

Debt arrears are estimated at over 60 percent of the gross domestic product, a situation that has affected the country’s credit rating.

Source: The Financial Gazette

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