Zimbabwe is at an economic cross-roads where decisive action has to be taken both on the economic and political front to foster a new sustainable economic growth charter. The growth ambition envisaged by the new administration under the latest policy charter TSP is way beyond average and its attainment is dependent on a combination of factors beyond the organic stimulus and austerity measures prescribed by the government some whose net effect dampens the desired growth. Most importantly, affordable capital has to be on Zimbabwe’s side and this article looks at the critical component of foreign debt outstanding and international re-engagement as key measures to unlock the envisaged funding.

As widely publicized, Zimbabwe’s external debt as at 2017 was at $11.3 billion of which 62.5% is due to government. Of the $7.1 billion debt due to government, 36% is owed to multilateral lenders, these being the World Bank ($1.6 billion) and AFDB ($0.7 billion). Other key creditors owed include the EIB and the Paris Club which are owed $0.3 million and $2.7 billion respectively. In terms of weight, China through various loans is the single largest creditor to Zimbabwe accounting for circa 30% of Zimbabwe’s external debt and of note is the fact that Zimbabwe remains current with its loan repayment to China.

The second biggest lender is the Paris Club which is an amalgamation of countries falling in the Euro Zone and these include UK, France and Germany. 13% of the Paris Club debt is owed to Germany, the biggest exposure to Zim within the bloc, 9% is owed to France while Britain is owed 8% of the Paris Club debt. The rest of the debt is split among other European lenders. A monetary deduction of the Paris debt puts the Germany debt at just $0.35 billion implying the Paris debt is evenly spread among its members and has no significant overexposure to one member. It could have been a big deal to have an over exposure to one lender since this lender would be compelled to fight in the debtor’s corner so as to either have the Club take a haircut, write-off or restructure the debt.

With IMF, Zimbabwe has already cleared its debt after invoking special drawing rights in 2016 to settle the outstanding $150 million with the lender positioning the country for possible financing. IMF however has 2 preconditions to bailout Zimbabwe one being to successfully complete a staff monitored programs where economic reforms around fiscal consolidation should be satisfied. The other condition being the clearance of debt with other IFIs, World Bank and AFDB. So there are 2 options the bilateral way or the Multilateral route. China is already overexposed and on the other hand has little influence over the IMF or the Paris Club which are the biggest creditors outside of itself, it may therefore not be willing to go beyond its current exposure as seen by its failure to extend any meaningful line of credit to Zimbabwe last month at the Sino-Africa summit.

In terms of debt forgiveness, the US which has extended ZIDERA, is likely to veto any proposed debt write-off by IMF or World Bank leveraging its 16.5% voting rights at the IMF. ZIDERA may also pose a threat even after Zimbabwe clears its multilateral debt with the World Bank and AFDB and successfully completes an IMF monitored ESAP. There are however good prospects on the European side through the Paris Club whose individual members UK and Germany have shown interest on rescuing Zimbabwe in recent months. UK, through its former foreign affairs minister Borris John and ambassador to Zimbabwe Catriona Laing made significant inroads towards normalization of ties before elections, the flame however seems to have subsided post elections and after Borris Johnson stepped down.

Beyond the historical ties, Britain has no serious interest on Harare, only a few British multinational companies operate in Zimbabwe while the debt exposure is too small to push for forgiveness or hair cut from member states. The same goes for Germany and France. Germany could push, since it is the largest lender in the club but again the motivation is minimal. In modern history, countries such as Greece and Myanmar have received bailouts from the multilateral lender at the instigation of Paris Club members with vested interests in the troubled countries.

Given this background, it is also not likely that the Paris Club will pull the trigger, as Zimbabwe is not on top of the bloc’s agenda. This leaves the US as the single most important player regards Zimbabwe’s debt resolution and readmission into the global community. The US fully understands its leverage and has little to lose on Harare since it does not have any meaningful investments to protect. ZIDERA is therefore a key political tool being used as a bait to the current government and the later has to weigh its options, although there are no quick ones beyond this.

Harare may however opt to embark on a private sector led capital accumulation mainly on the foreign side to allow for new money as FDI. This too without the buy-in of IFIs and the international community may fail to yield desired results. As an example, the pre-election interest has completely died and investors await a combination of international community buy-in and fiscal reforms which are vital for stabilization and growth prospects. The buy-in is essentially based on two key parameters, 1 being debt clearance and a corresponding staff monitored program and political reforms in line with the demands of the US, a country which has a bigger stake in all the key monetary institutions and significant influence global economics.

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