Gripped by drought and possibly on the verge of total economic collapse, Zimbabwe has been awarded a $91.2m (£74.5m) package by the International Monetary Fund (IMF) which had been held for seven years pending the settlement of arrears to the financial institution.
Bretton Woods institutions − including the World Bank (WB), the IMF and African Development Bank (ADB) − froze their financial assistance to Zimbabwe in 1999 when the nation defaulted, and rendered it unable to clear a $1.8bn (then £1.36bn) debt it owes the institutions. Western governments also imposed sanctions on Harare in 2001 over allegations of vote-rigging and human rights abuses.
In 2014, the IMF stated the government needed to pay off its arrears and restore confidence by implementing economic reforms, social development and poverty eradication programmes if it was to be awarded financial assistance to avoid an economic catastrophe.
It has now emerged that, after drawing down its special drawing rights (SDR) holdings held at the IMF, President Robert Mugabe’s government was able to clear $107.9m of arrears to the fund’s Poverty Reduction and Growth Trust (PRGT), and was granted access to $91.2m.
Created by the IMF, SDR is a supplement to the existing reserves of member countries and acts as an artificial currency. Paying off $107.9m essentially unlocked $91.2m (SDR 66.4m) which was held in an escrow account pending the settlement. After paying off its PRGT debt, Zimbabwe now has a balance of SDR 80.4m (about $110m) in SDR holdings.
“The amount held in escrow is indeed SDR 66.4m, which became available to Zimbabwe after settling the overdue obligations,” IMF resident representative to Zimbabwe, Christian Beddies, was quoted as saying by NewsDay newspaper.
Need for ‘clearer and sincere anti-corruption agenda’
While local media have described the move as “IMF joy”, the financial institution said the settlement of PRGT debt would not result in the normalisation of relations with Harare. The IMF’s executive board will only release its financial chokehold once Zimbabwe pays off $601m to the ADB, $1.1bn to the WB, and $240m to the European Investment Bank (EIB).
For Blessing-Miles Tendi, a Zimbabwean author who teaches politics at Oxford University’s Department of International Development, repaying debt alone may not be sufficient for the region’s big three multilateral lenders to bring Zimbabwe back into the international financial fold.
“The key thing is that it is going to require a wide set of reforms in addition to just paying up debt (for the IMF to free up financing). The ruling Zanu-PF party has proven unable so far to engage in any kind of meaningful reform,” Tendi, exclusively told IBTimes UK. In the academic’s view, this may be evidenced by finance minister Patrick Chinamasa‘s two proposed reforms being reversed by Mugabe “within days”.
The need for reform comes amid an ongoing corruption scandal involving higher and tertiary education minister Jonathan Moyo, who is facing fraud allegations over claims he siphoned off more than half a million dollars from the Zimbabwe Manpower Development Fund (Zimdef) to bankroll Zanu-PF campaign events.
“We have those scandals that have really exposed [the fact that the]Zanu-PF elite have turned the state into a personal bank account. I don’t see how any international creditor or investor would want to put [in]money without a clearer and sincere anti-corruption agenda having been put in place.”
With reference to international creditors’ demands for social development, Tendi believes that the 2016 protests “undermine” Zanu-PF’s position because of the repressive state response. “They have an uphill task,” he said.
Harare, meanwhile, says it will use the country’s own resources, bridge financing from a regional financial institution, and a long-term loan from a bilateral creditor to pay off its arrears to the three international bodies and carry out economic and political reforms.
Zimbabwe’s cash-starved authorities in recent months have announced a series of measures to alleviate the economic crisis in the country, including a “diaspora remittance system” to make it easier for the diaspora to send money back home and the controversial introduction of $75m bond notes.