The Financial Gazette

Shame Makoshori, Senior Business Reporter

THE Reserve Bank of Zimbabwe (RBZ) this week warned that the country’s ballooning external debt will undermine efforts to mobilise lines of credit which are critical for economic recovery.
RBZ Governor, Gideon Gono, said while presenting the January 2012 monetary policy statement on Tuesday that it was imperative for Zimbabwe to expeditiously tackle the debt crisis to rebuild confidence among key external funding organisations.
In July last year, the Ministry of Economic Planning and Investment Promotion said Zimbabwe's external debt, which climbed to US$7,1 billion in 2009, had charged forward to US$8,8 billion in the first quarter of 2011, taking total unsettled commitments to about US$10,3 billion.
Zimbabwe has been working on a hybrid debt management strategy to retire its arrears.
The strategy will include implementing components of the Highly Indebted Poor Countries status (HIPC) and a debt rescheduling programme.
This week, Gono said he was not in support HIPC, but emphasised the importance of debating the issue to help authorities come up with concrete solutions.
“The successful orientation of the Zimbabwean economy on a sustained recovery and growth path requires that the country’s unsustainable external debt be resolved expeditiously,” the RBZ governor said.
“Delays in the resolution of the country’s external debt continues to militate against efforts by both the public and private sectors to mobilise external lines of credit to recapitalise their operations and finance critical projects. An effective debt resolution strategy, if timely implemented, will undoubtedly unlock the much-needed external lines of credit under any monetary regime,” he said.
He spoke as several industries continued to face hurdles in accessing funding to bankroll recapitalisation and working capital programmes.
The mining sector requires at least US$5 billion to restore production to pre-2000 levels while at least US$2 billion is required in the manufacturing sector.
“The resolution of the country’s external debt is thus a vital cog in adequately complementing policy measures geared at attaining an all-encompassing economic recovery process that is inclusive and sustained,” said Gono.
In June, the International Monetary Fund (IMF) said Zimbabwe was projected to remain in “debt distress over the long term”.
It said significant strengthening in policies and debt relief within a comprehensive arrears clearance framework supported by donors were essential for resolving the country’s external payments arrears.
“Government non-concessional borrowing is not affordable and could complicate future external arrears clearance,” said the IMF.
Under the Medium Term Plan, a five year economic blue print running until 2015, government said last year it would engage the international community on a strategy to address the debt crisis, which has had the effect of reducing Zimbabwe's precarious international credit ratings.
High debts have always forced government to divert resources meant for social spending to debt servicing.
The proposed debt management programme was expected to entail a strategy that will yield the needed relief, create opportunities for unlocking requisite resources for economic growth and development and ensure that the country's expenditure priorities in particular social expenditures were not compromised.
The country has been battling to overcome the devastating effects of a decade of recession highlighted by 500 billion percent year-on-year inflation in December 2008, four-digit interest rates, and precarious foreign exchange reserves.
Although in the past two years the economic environment has improved, focus had been on the search for stimulus packages to revive under-performing industries.
Finance Minister, Tendai Biti, said in 2009 Zimbabwe required US$8,5 billion in three years to fund the recovery.
But only a trickle of this has been raised due to donor fatigue.