IMF Urges Zimbabwe to Revamp $10.5 Billion of Unsustainable Debt

(Bloomberg) -- The International Monetary Fund said Zimbabwe must restructure its external debt of more than $10 billion, before the southern African nation can receive any fresh credit lines from the institution.

The IMF is unable to provide financial support to the nation due to unsustainable debt levels and official external arrears, it said at the end of a virtual mission, led by Dhaneshwar Ghura, mission chief for Zimbabwe. Government debt was at 86% of gross domestic product in 2020, according to the IMF. 

“A Fund financial arrangement would require a clear path to comprehensive restructuring of Zimbabwe’s external debt, including the clearance of arrears and obtaining financing assurances from creditors,” the Washington-based lender said in a statement Tuesday.

The southern African nation is saddled with $10.5 billion of debt owed to international financial institutions including the Paris Club, African Development Bank and the World Bank, which has effectively cut it off from multilateral lenders. Treasury started repaying a portion of the $3.78 billion it owes Paris Club members this year, to regain access to foreign loans.

Other Highlights:

• The economy is expected to expand 6% in 2021, compared with Treasury’s 7.8% forecast, after two consecutive years of contraction. Growth will be driven by a better agricultural harvest, improved mining and energy production, buoyant construction and manufacturing activity, and increased infrastructure investment.
• Close co-ordination among fiscal, exchange rate, and monetary policies should continue in the near-term to lock in economic stabilization. Key priorities should allow for greater official exchange rate flexibility and tackle foreign-currency market distortions.
• Reserves known as special drawing rights of almost $1 billion allocated to the southern African nation should not substitute critical reforms. The SDRs should be spent on priority areas within a medium-term plan and follow good governance and transparency practices.
• Uncertainty remains high and the outlook will depend on the coronavirus pandemic’s evolution, aggravated by the economy’s vulnerabilities to climatic shocks and the implementation of sustainable policies.

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