Zimbabwe is being forced into a corner by the refusal of multilateral lenders to lend the country more money as the country faces economic meltdown, according to the government’s top treasury official.
“Its very difficult to run the economy without any external support,” George Guvamatanga, the 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.”
Shunned by multilateral lenders since defaulting on payments in 1999, Zimbabwe still owes $7.66bn to various international financial institutions, including the World Bank, the European Investment Bank, the Paris Club and the African Development Bank.
As a result, it’s been excluded from official bailouts and debt relief extended to other countries amid the coronavirus pandemic, relying largely on grants from donors to deal with the subsequent health crisis.
Litany of woes
Still, Zimbabwe’s woes were legion even before the pandemic struck. The economy is in free-fall as a result of persistent shortages of foreign currency, fuel and food. Rampant inflation and a local currency that has imploded since being re-introduced last year.
President Emmerson Mnangagwa has repeatedly pledged economic and political reform, but a clampdown last month on opponents calling for mass protests against alleged state corruption has served to intensify international criticism of his government. Mnangagwa remains unmoved, saying the demonstrations were an “insurrection” that sought to overthrow his administration.
Debt relief was a cornerstone of finance minister Mthuli Ncube’s strategy to kick-start the economy. But his plan immediately stumbled when the Paris Club, a group that represents creditor nations including members of the Organisation for Economic Cooperation and Development, said the country first needs 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 “has not changed” and the country remains ineligible for direct financial assistance. “Support to countries such as 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 spokesperson for the Washington-based lender said in an e-mailed response to questions.
The International Monetary Fund (IMF) said that though the country is in good standing with the institution, it has unsustainable debt and long-standing arrears to official creditors.
“The economy is in the midst of a crisis, with very high inflation and approximately half the population food insecure,” a spokesperson said in an e-mailed reply to 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, though the current juncture exacerbates the macro-economic challenges.”
Still, Guvamatanga insists that the treasury has met all the agreed economic benchmarks and this is 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 by citizens.”
The government is living within its means, has no overdraft with the central bank and recorded a surplus of Z$800m ($9.6m) in the six months to end-June, he said. Under his watch, government departments have “learned that ‘no’ is also an answer they could receive”.