Zimbabwe’s Debt Conundrum: Will the Chissano driven debt clearance process work?

Debt renegotiations are regarded as a crucial goal for the country’s re-engagement drive, enhancing the economic recovery, employment creation and poverty reduction as touted in the National Development Strategy (1).

Debt restructuring exercises are mostly anchored on reforms, particularly on three fronts: politics and governance reforms, economics and foreign policy. Without sustained and believable attempts in changing these three, it is less likely that such exercises yield much needed results for the debtor nations. Bad governance has largely been the reason behind an atrophying economy, which does not bode well with debt repayments. As such, the country has constantly failed to provide a clear and credible plan for clearing its debt repayments. 

According to Friedman (2015), the debt negotiation process is based on creditors wanting their loans fully repaid as quickly as possible and debtors who are eager to pay as little as possible. Unfortunately, also, debt restructuring outputs are rarely enforceable because of lack of an enforcer in the global financial architecture.

The ultimate aim of this is for Zimbabwe to improve financial health to ensure ease of access to future loans. It would be ideal and credible for the reform effort to work. However, the country’s track record of promises and delivery on this front has been poor. In October 1999 the World Bank suspended the issuance of a US$140 million loan after the government lied about how much it was spending in the war in Democratic Republic of Congo (DRC).  Public finance misrepresentation has been a major challenge for the country

1. Lima got dim?

Zimbabwe set out a debt restructuring and repayment plan which was adopted in Lima, Peru in 2015. The debt clearance program became known as the Lima Process, in which Zimbabwe agreed to and committed to paying off arrears owed to the World Bank, International Monetary Fund (IMF), and African Development Bank (ADB) before it can access new loans.  A raft of economic and political reforms such as civil service reforms, reducing fiscal deficit and reforming state owned enterprises were demanded by the Lima Process. Not much was achieved on the reforms front and Zimbabwe only managed to clear off the IMF debt. Lack of political will and misgovernance and the absence of a credible economic recovery trajectory threw the Lima process in the wind.

Enter the Paris Club Response: Reform, reform, reform?

When Minister of Finance and Economic Development, Professor Mthuli Ncube wrote to the Paris Club on the 2nd of April 2020 to address the debt situation, they responded on the 12 of June 2020 by demanding “implementation of substantive and sustained sustainable political and economic reforms”. They especially underscored “respect for human rights, especially freedom of assembly and expression” as the key.  The reform agenda has not made headway since then, and the situation is likely to change in the foreseeable future. And does this foretell the Chissano Initiative?

Constitutional Opaqueness

As much as Zimbabwe tried to improve its debt management outlook over the years, the implications of the amendments brought via Constitution of Zimbabwe Amendment (No.2) complicates debt transparency and accountability. The amendments took away the power of Parliament in overseeing an agreement entered into by the state and foreign entities and organisations which may have fiscal obligations on the state. This provision does not bode well with attempts towards external debt negotiations, as they limit public scrutiny in the exercise.  Public opinion in these processes is undermined.

Chissano Process: Cautious optimism

Will the Chissano led process of debt negotiation being pursued by the post-coup government open up new opportunities for the credit-famished nation? At the end of 2022 an elderly statesman Joachim Chissano, the former President of the Republic of Mozambique, was hired by the Zimbabwean government to be the lead facilitator, with Mrs Luisa Diogo, the former Prime Minister of Mozambique, being the technical advisor to the facilitator. Also included in the process is the president of the Africa Development Bank, Akinwumi Adesina, now regarded as the Champion of Zimbabwe’s Debt and Arrears Clearance Strategy. The process largely involves dialogue meetings between the government and creditors (World Bank, International Monetary Fund, Paris Club, Africa Development Bank and European Investment Bank) plus development partners. Others who will be present include the former white farmers who are owed US$3.5 billion, as well as captains of industry.  President Chissano also got input from civil society, and private sector players. What is however unconfirmed is the presence of China, which many believe is now the biggest creditor state to Zimbabwe.

Debt negotiations are lengthy and protracted political economy affairs. If they are successful, they provide a country like Zimbabwe the ability to borrow again at a much cheaper rate in the future, and improve the prospects of economic growth. What often complicates the outcomes of the negotiations is that government commitment or political will is less observable in many circumstances. This is particularly true in the case of Zimbabwe, wherein past commitments have failed to yield positive results. Politicians have oftentimes loudly misrepresented the true picture of their commitments to debt resettlement. Also, pronouncements made during a domestic election season should be taken with a pinch of salt. 

What other Options?

In light of the prolonged threat of the country’s debt overhang, we propose the following routes for the country.

• Highly Indebted Poor Countries Initiative -All key development metrics point out that Zimbabwe is a poor country, and has for more than three decades failed to service its external debt. The debt crisis it is facing has deleterious development implications which harm the ordinary citizens more. It would be prudent for the country’s debt to be forgiven via the highly indebted poor countries initiative, so that we start off in a clean slate.
• Enhance Debt Management Transparency: Zimbabwe has debt transparency challenges. Its actual debt, both domestic and foreign, is not known by many, a factor which points to limitations in public finance management and corruption. It would be ideal for the country to engage an independent consultant to audit the country’s debt. All debt and its terms ought to be published in simple language to all, and quarterly provided on all repayments being made.

In closing, the country and the negotiators will not run short of credible ideas on resolving the situation. The main ingredient for success is genuine and unwavering political commitment to implementation, which unfortunately has often been in short supply in the past decades.

References

Frieden, J. 2015. The Political Economy of Adjustment and Rebalancing. Journal of International Money and Finance, 52: 4–14