Zimbabwe arrears plan back on track after IMF, World Bank backing

Finance Minister Mthuli Ncube addresses a meeting with global lenders in Bali, Indonesia, on October 10, 2018

Zimbabwe’s plan to clear $2 billion in foreign arrears is back on track after receiving World Bank and IMF backing, Finance Minister Mthuli Ncube has said. 

In a statement on Wednesday, Ncube also said the international financial institutions, meeting in Bali, Indonesia, have endorsed his two-year economic plan, a raft of austerity measures announced last Friday. 

Ncube made a presentation on his plan to the meeting, chaired by the World Bank, and also attended by the African Development Bank, the Paris Club Group of creditors represented by the French, the European Union, and other bilateral partners such as the United Kingdom, United States of America, Australia, Netherlands and South Africa.

“The Minister’s presentation centered on political and economic reforms being undertaken by Government, especially fiscal consolidation, state enterprises reforms, monetary sector reforms and a road map on arrears clearance,” Ncube said. 

The debt relief strategy, known as the Lima plan, was signed in Peru in 2015. The process however virtually collapsed after Zimbabwe failed to come up with a structural economic reform plan demanded by the lenders. Among the reforms demanded of Zimbabwe were deep cuts on spending, including on the wage bill, a lid on borrowings and parastatal reform. Ncube now says his new policy was endorsed. 

“The co-operating partners expressed their endorsement to the Transitional Stabilisation Programme, as it captures adequately the policy reforms that Government is implementing in order to turn around the country’s economic fortunes.”

According to Ncube, Zimbabwe was told at the meeting to “judiciously implement the measures as outlined in the TSP. They reiterated that implementation of the TSP is crucial for arrears clearance.”

This backing by the lenders is a major step forward for Zimbabwe, but it does not mean that the country will now immediately access the new credit that it desperately needs to stabilise the economy. 

To access fresh funding, Zimbabwe needs to simultaneously clear arrears owed to all the lenders. 

Ncube, speaking this week in London ahead of Bali, said his major push at today’s meetings would be to convince the lenders to allow Zimbabwe to stagger payments among the creditors. 

On this, Ncube says in his statement from Bali: “Furthermore, Zimbabwe’s request for a more accommodative treatment under the Pari Passu principle received positive consideration by the partners.” He gave no further detail.

Ncube describes the meeting as having been “the best so far on Zimbabwe’s arrears clearance process.”

Rémy Rioux, chief executive officer of the French government’s development agency, was in Zimbabwe last week and Zimbabwe seems to have managed to make some diplomatic inroads. In Bali, according to Ncube, “the French expressed their support and advised that it is critical that all the Paris Club Group of creditors have consensus in order to fulfill the arrears clearance process”.

The US, which has extended economic sanctions on Zimbabwe, remains sceptical. Following the meetings, Ncube met US Deputy Assistant Secretary of Treasury, Erick Meyer, who “requested that Zimbabwe see ZIDERA in a positive way which was agreed to by the delegation.”

ZIDERA, extended by Donald Trump just days ahead of elections in July, makes it difficult for Zimbabwe to receive any debt relief or aid from the World Bank, the IMF or the AfDB. Ncube says Meyer pledged to arrange further meetings for Zimbabwe in Washington. 

Mattew Rycroft, the UK’s Permanent Secretary to its development arm DFID, tweeted his support for Zimbabwe’s reform efforts but said there was a “long road ahead”.