Zimbabwe reduces chances of IMF and World Bank bailout

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    HARARE- Zimbabwe has effectively reduced its chances of IMF and World Bank bailout, after restating its GDP numbers upwards beyond the low income threshold of $995 to a GDP per capita of $1,511 as at 2017.

    According to restated figures Zimbabwe’s GDP as at 2017 was at $22 billion up from the initial stated level of $17 billion.

    Poor countries as defined by the GPD per capita threshold and with unsustainable debt levels qualify for an IMF and World Bank program dubbed HIPC (Highly Indebted Poor Countries) which allows the international financier together with the World Bank, to extend loans at relatively lower rates and write off debt in some instances, for qualifying members.

    This means qualifying countries, can flexibly repay their debt over a longer duration (debt restructuring) or have their debt written off partially or completely.

    To be considered for the initiative, countries must meet three minimum requirements for participation in the program.

    First, a country must show its debt is unsustainable; however, the targets for determining sustainability decreased to a debt-to-export ratio of 150% and a debt-to-government-revenues ratio of 250%.

    Second, the country must be sufficiently poor to qualify for loans from the World Bank’s International Development Association or the IMF’s Poverty Reduction and Growth Facility (PRGF, the successor to ESAF), which provide long-term, interest-free loans to the world’s poorest nations.

    Lastly, the country must establish a track record of reforms to help prevent future debt crises. Prior to the adjustment in GDP, Zimbabwe met 2 of the 3 conditions and given the envisaged fiscal consolidation under TSP, it is likely that Zimbabwe could have increased its chances of having its debt written off by the key IFIs.

    Zimbabwe has a significant external debt level which stood at $11.3 billion at the end of 2017 of which $7.1 billion is attributed to government.

    Combined to the local debt the total sits close to $16 billion which is 72% of GDP and gives a debt to GDP ratio of over 300% and a debt to export ratio in the same region.

    Much of the growth in external debt has been driven by defaults which in some instances now run close to 20 years. On the local from the debt has been spurred by deficit financing.

    In 2016 Zimbabwe used its special drawing rights at IMF to clear its debt with the multilateral lender. IMF however woks together with the World Bank and AfDB whom Zimbabwe runs arrears with and this has deterred the former from extending financial support before these arrears as well as fiscal reforms are pursued.

    According to the Transitional Stabilisation Program, Zimbabwe’s economic plan running upto 2020, the sequence towards resolution to Zimbabwe’s debt arrears of $5.6 billion, will require the country clearing first, and simultaneously, its arrears to the AFDB $680 million and the World Bank, more than $1.4 billion and the EIB, $308 million.

    – Equity Axis News

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