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Zimbabwe sets out plan to solve its debt problems

Added 05/Apr/12

By Eurodad partner AFRODAD

In March, the government of debt ridden Zimbabwe launched a policy framework for finding a solution to the country’s debt problems. While welcoming the government’s recognition that the debt issue has not been resolved, Eurodad’s sister network AFRODAD questions the apparent trust Zimbabwe’s government have placed in a process conditional on the same kinds of economic policy reforms that the country unsuccessfully went through in the 1990s. Accoding to Afrodad not only does the country need to solve the debt crisis but also to mobilise domestic resources.

HARARE, ZIMBABWE, 2 April 2012. The launch of the Policy framework document: Accelerated Arrears Clearance, Debt and Development Strategy (ZAADDS), by the Inclusive government of Zimbabwe on the 16th of March 2012, was a landmark event in the history of the inclusive government. ZAADDS is one among numerous important policy documents this government came up with since birth in 2008.AFRODAD is proud to have participated in the development of this key framework that is premised to resolve Zimbabwe’s debt overhang.

 
The Zimbabwe Accelerated Arrears Clearance, Debt and Development Strategy (ZAADDS) is a prudent initiative as it sets out the tone for effective financial management, which is a key tenet for economic governance. It is a consensus document within the inclusive government given the fact that principals appended their signatures to the document preface (His Exellence R.G.Mugabe) and preamble (Rt. Hon. M. R. Tsvangirai Prime Minister). The consultative process towards its development was speared by Honourable Deputy Prime Minister, Professor A. G. O. Mutambara.


It is encouraging to note that the principals agree that ‘the non-resolution of the debt issue amounting to US$6.9 billion has become a major impediment to Zimbabwe’s rapid economic growth’ hence the need to resolve it. ZAADDS is defined as a ‘hybrid debt resolution strategy which includes the adoption of traditional debt resolution initiatives combined with leveraging of the country’s natural resources to achieve sustainable economic development’. ZAADDS key tenets are vital to achieve external debt sustainability.


The establishment of and operationalisation of a Debt Management Office is commendable. Zimbabwe Aid and Debt Management Office (ZADMO) should be grounded on a strong institutional and legal framework, with a clear mandate and authority to prudently manage debt. This is a strategic measure that will see highly qualified personnel addressing the debt problem from a well informed perspective.


Undertaking a validation and reconciliation exercise of the external data-base is critical in validating the nature, amounts, origins and legitimacy of the debt claims. This is an endorsement to the previous clamours by debt campaigners like AFRODAD, Jubilee South and ZIMCODD to a Debt Audit. Audits essentially involve undertaking a meticulous examination of the past. But they are also, and perhaps especially, a means of mobilising citizens enabling them to gain a hold on the present, to avoid the fatality of future debt, and to prevent its indefinite perpetuation.


Re-engagement with creditors and the international community is crucial at this moment thus negotiating for arrears clearance, new financing and comprehensive debt relief is urgent. The IMF’s Extended Credit Facility outstanding arrears amounting to US$140million needs to be settled. The Fund acts as gatekeeper for all donors.


In as much as Zimbabwe gears for external means of settling the debt, it is imperative that “leveraging of natural resources” has been considered as the best alternative domestic solution for debt relief and development. In order to realise the intended objective, the policies to do natural resources should address issues to do with management of proceeds from natural resources, publication, disclosure and verification of revenue and payments made to government by companies in the extractive industry in order to improve transparency and accountability in this sector.


AFRODAD recalls that ZAADDS entails efforts by the government to implement a series of reforms focusing on a number measures including reviewing national tax laws. In this regard, it is essential that the custodians of tax revenue review such policies whilst striking a balance between investment incentives and revenue collection in order to harness maximum possible revenue for development projects. It is understandable that balancing fiscal take with willingness to pay is difficult but taxation remains the major source of revenue for Zimbabwe and other African countries especially those rich in natural resource endowments.


The policy document however falls short of mentioning the traditional debt relief initiatives it builds upon. The Inclusive government has attempted in several occasions to establish and implement sound macro-economic policies. They developed a set of economic policies such as STERP 1 and 11, Medium Term Plan for 2011-2015, and the Zimbabwe Accelerated Re-engagement Economic Programme (ZAREP) and the fundamentals underpinning these economic frameworks points to adoption of the unpopular HIPC debt relief initiatives. If ZAADDS is the debt relief mechanism in place then ZAREP is the economic framework that supports it.


This is the same scenario with HIPC driven by Poverty Reduction Growth Facility (PRGF) now Extended Credit Facility. ZAREP aims to establish a good track record of implementing sound macro-economic policies, cut wage bills, budget deficts, retrench civil servants, and privatise loss making parastatals. Zimbabwe went through this in the 90s. How different will be the impacts of these austerity measures this time around?


The successful implementation of ZAADDS will largely depend on the political context prevailing in Zimbabwe. Political context in Zimbabwe has helped us to explain why the introduction of noble economic frameworks and polices designed to resuscitate the ailing economy in the past have failed. The political leadership should work together towards achieving same vision of a debt resolution for Inclusive growth, job creation and poverty reduction.

You can download the full Accelerated Arrears Clearance, Debt and Development Strategy

See also Uncovering Zimbabwe’s debt: The case for a democratic solution to the unjust debt burden by Jubilee Debt Campaing, Eurodad and Zimbabwe Europe Network