Zimbabwe negotiating debt-write off – Biti
By KING SHANGO
Published on: 17th July, 2009
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ZIMBABWE – HARARE – Zimbabwe’s external debt including arrears amounted to US$4,7 billion as at December 31, 2008, but the new administration was now engaged in a debt reconciliation exercise with its creditors, the Finance minister has said.
Zimbabwe’s US$4,7 billion external debt is four times the size of the 2009 national budget presented in February. Biti added another US$1,3 billion to bankrupt government ministries when he presented a supplementary budget to Parliament on Thursday.
Medium to long-term external debt continues to dominate the external debt stock, accounting for 95,2 percent of the total amount. The remaining 4,8 percent is short term debt.
“Zimbabwe’s total external debt including arrears amounted to US$4,7 billion as at 31 December 2008,” Biti told Parliament. “Of this total debt, government owed US$3,6 billion, with the rest owed by parastatals and the private sector.”
Biti said it was crucial that government clears these arrears before accessing new lines of credit, adding government was negotiating for debt write-off with some lenders.
The solvency of government was already seriously compromised with the current interest rates, and technically, the government’s finances will not be better with even a 1 percent rise in interest rates. Biti said government had no money to pay back the external arrears.
The increasing government debt stock raises fresh fears of renewed turbulence in the crisis-strapped economy, emerging from a 10-year economic crisis.
The government has also been forced to rely on domestic borrowings because its tax revenue base has dwindled following company closures which have led to retrenchments.
This means that in real terms, the government is collecting less revenue through corporate and personal income tax.
The major effects of rising government debt would be an escalation of the inflationary rate because of increased recourse to the domestic market for funding.
Biti said: “Given that the country does not have the capacity to repay its external debt obligations , government has initiated the assistance of international cooperating partners with debt relief and write-offs as part of the re-engagement process with multilateral and bilateral creditors.
In this regard government is currently carrying out a debt reconciliation exercise with external creditors, critical for consideration of the country’s arrears clearance strategy and eligibility for external debt relief.”
Biti said government had contracted a “debt expert” with the assistance of the African Development Bank to assist government in formulating an external debt and arrears clearance strategy which will form the basis for debt relief.
Zimbabwe had also re-engaged with the World Bank for debt relief under the framework of the Highly Indebted Poor Countries Initiative and the Multilateral Debt Relief Initiative.
