Zimbabwe US$10bn repayment plan on the table

LIVINGSTONE MARUFU

Zimbabwe has to table a repayment plan to international funders to resolve the debt crisis which has stalled the inflow of cheap lines of credit from international financial institutions required to reboot the economy, industry lobby groups have said.

The proposal comes as Zimbabwe is in a debt trap and owes multilateral and bilateral creditors over US$10bn.

In its submissions for the Mid Term Fiscal Policy Review, the country’s business lobby groups — the Confederation of Zimbabwe Industries (CZI) and the Zimbabwe National Chamber of Commerce (ZNCC)—said Zimbabwe needed fresh international capital to retool; hence debt repayment would be critical.

“To rebrand Zimbabwe and improve its credit rankings, there is a need to table a Debt Repayment Plan to international funders owed billions by the government of Zimbabwe. This will help the manufacturing sector and other key sectors of the economy to unlock lines of credit to retool,” ZNCC said in its submissions.

“It is recommended that the country start to re-engage on debt overhang so that economic progress will not be forestalled by this. The country and businesses need access to international credit lines from multi-lending institutions.”

Zimbabwe is sitting on a sovereign debt time bomb that could trigger at any time as the country’s external debt has ballooned to unsustainable levels. 

This has contributed significantly to the crisis facing Zimbabwe. The crisis is likely to worsen if the government fails to act, the business lobby groups said.

Although Zimbabwe paid off the International Monetary Fund (IMF), the country still owes the African Development Bank, World Bank and European Investment Bank, which take a cue from the IMF.

The lobby groups also advised the government that it has to tighten fiscal consolidation to contain the budget.

Finance and Economic Development minister Mthuli Ncube is expected to present the Mid Term Fiscal Policy Review in July.

The deviation, the lobby groups said, has the potential to upset markets and dent both business and consumer confidence.

Government is also battling structural weaknesses.

Exacerbating the situation, the deviation has also put the country in a debt trap.

In their submissions for Mid-term Budget review, the business lobby groups said their hopes for recovery are pinned to Ncube successfully dealing with headwinds including the debt overhang, foreign currency auction market which is not adequately supplying forex to ailing local companies, policy consistency and coherence and the contentious forex retention. Prices of basic goods have also rocketed since the announcement of the 2021 National Budget.

Although the foreign currency auction system has stabilised the market, business said more needs to be done to ensure transparency of the system and allow market forces of demand and supply to determine the rate.The auction rate is supplying around ZWL$140m per month against the required   forex of US$320m, a situation which has forced various companies to procure the forex from the parallel market, where they pay a higher premium.

The lobby groups said the forex auction market should be liquid with support from the Treasury to avoid delays in bid settlements.

CZI said delays in bids settlement is undermining the efficiency of the auction market as companies’ working capital will be tied-up in delayed settlements affecting the smooth operations of businesses.

It is also recommended that the foreign exchange auction market be market determined.

“Stability being experienced in the economy is still fragile and fiscal discipline is of paramount importance to preserve and sustain the stability. It is therefore recommended that a balanced budget be maintained and Treasury spend within its means. Money creation to support fiscal spending must be avoided at all cost, as it has the potential to destabilise the economy,” CZI said.

CZI said although the introduction of the forex auction trading platform was welcome, more still needs to be done and there is a need to ensure transparency of the system and allow market forces of demand and supply to determine the rate.

CZI is recommending that monetary policy remains on track to complement the fiscal policy.

The industry representative body said subsidies should not be funded from the fiscus and unplanned subsidies must be avoided at all cost.

It also said the producer prices must be economically viable and at import parity, so that the Treasury does not resort to subsidies.

On fiscal consolidation the business recommended that the Treasury must put a cap on civil servants’ salaries as proportion of the total budget revenue to avoid overheating the economy.

Since 2018, civil servants have been at warpath with the government demanding that they get their October 2018 US dollar salaries.

But CZI said the 2018 US$ salaries were not sustainable and Treasury must be cognisant of this fact in their salary negotiations.

“Instead the budget must focus on capital projects that have future returns and the country has been lagging behind on infrastructure development which is in a sorry state and needs revamping to attract FDI,” CZI said.

ZNCC said the manufacturing sector did not access the ZWL$18bn stimulus package promised by the government last year.

The lobby group said the credit guarantee arrangement with the government was not offering enough comfort to banks to lend to the private sector hence more funding was needed to increase capacity utilisation.

“There is a need to set a fund for drawdown by businesses because the credit guarantee arrangement with the government is not offering enough comfort to banks to lend to the private sector,” ZNCC said.

Business is also demanding the Treasury to enhance competitiveness to stimulate exports.

The groups said as with import substitution, more focus is needed on export promotion. And the export tax regime needs to be reviewed as it is heavily taxing the exporters.

Export incentives that were recently announced by the government to promote exports are a welcome development.

Business said the first quarter of the year saw some policy consistency by the government, as there were no major abrupt policy announcements and reversals that bring shocks to the market and this policy stance must be maintained as it helps to bring stability and create a business environment.

ZNCC and CZI have recommended that all local government taxes be uniform across all local authorities as some local councils are charging ridiculous taxes to business, which in turn suffocates business.

Ncube was asked to have standard fees for all councils.

The Treasury is also encouraged not to review taxes in the mid-term budget policy. Companies said they are already over taxed.

Business wants the Treasury to scrap the 2% tax on electronic transactions.

 The mining industry together with the business said that the government should review the forex retention rate and the 40% surrender requirement by exporters to allow exporters more of their foreign currency to finance export business and the period of acquittal of export receipts should be extended to 120 days.

Gold Miners Association of Zimbabwe chief executive Irvine Chinyenze said: “As miners we want the fiscal authorities to review the forex retention threshold in the mining sector to increase production. Miners are in dire need of capital and there is no investment, therefore depend on what they have earned.

“Royalties should be reduced to sustainable levels to allow the government to get its revenue and the miner to reinvest the capital into his mine or mining firm.”

Economist Gift Mugano said the major highlight of the Mid-Term should be to promote localised production, although taxes should be balanced.

“Treasury should come up with policies that promote localised production to save forex and bring self-sufficiency to the country. If the country is self-sufficient for two years and if it continues with that trend, exports will definitely fall into place,” he said.