Zimbabwe debt will increase to US$9 billion


This will bring the country’s debt burden to US$8,6 billion, almost three times higher than the Gross Domestic Product (GDP), which is estimated at US$3,5 billion.

The IMF’s projections meant that by the end of 2010, every one of Zimbabwe’s 12 million citizens will owe lenders about US$750.

This colossal debt overhang for more than 75 percent of Zimbabweans living below the poverty datum line will become the biggest hurdle against the improvement of their quality of life unless interventions are made towards debt re-scheduling or forgiveness.

Zimbabwe defaulted on payments to key financiers, including the IMF and the World Bank after hyperinflation, and political and economic turmoil, rocked the country between 2000 and 2008.

The country is battling to overcome the devastating effects of a decade of acute recession highlighted by 231 million percent year-on-year inflation in July 2008, four-digit interest rates, and precarious foreign exchange reserves.

Although in the past year the economic environment has improved, focus is on the search for stimulus packages to revive the country’s under-performing industries.

It will be hard for the country to repay the outstanding foreign and domestic commitments.Finance Minister, Tendai Biti, said last year Zimbabwe required US$8,5 billion in three years to fund the recovery.

But only a trickle of this has been raised due to donor fatigue.The IMF said while positive signals showing prospects for recovery had been registered since 2009, growth prospects remained bleak as Harare was entangled in a plethora of constraints requiring decisive actions.

“The outlook for 2010 is highly uncertain,” the IMF said on Tuesday.

“Zimbabwe is in debt distress. Sound policies and good governance will be critical to pave way for eventual debt relief and access to donor financing… directors strongly encouraged authorities to improve their cooperation with the Fund on policies and payments,” added the IMF.

“Large budgetary wage increases crowding out growth-oriented expenditures, a significant slowdown in private capital inflows because of increased uncertainties about the indigenisation process, and strong credit growth have intensified external and banking system vulnerabilities.

“Directors called for stepping up prudential supervision to contain credit and liquidity risks in the banking system and cautioned against moral suasion on banks to lend to specific sectors,” the IMF added.

The high credit growth was  one of many negative projections the IMF made on Zimbabwe.The BrettonWoods financial institution said gross official reserves — measuring how many months’ import cover the country’s foreign reserves are worth— will fall back to negative territory.  Foreign reserves are expected to  end the year at about 0,3 months’ cover in 2009.

GDP recovered from a 14 percent contraction in 2008 to four percent growth in 2009 after government liberalised the economy in February.But the IMF has revised 2010 growth projections to four percent from seven percent because government had been moving slowly to implement more viable policies while political uncertainty had returned due to infighting in government.

A huge public wage bill, weak banks, the credit growth and the impact of controversial empowerment laws, are among major under currencies threatening investment, and economic and social stability.

But government will have to balance between keeping the  increasingly restive civil service at current levels and taking advice from the IMF. Biti is under pressure to increase salaries for the 236 000 civil servants, whose earnings consume 75 percent of State revenue.

The IMF said problems in Zimbabwe’s banking system would only be solved by addressing governance weaknesses at the Reserve Bank of Zimbabwe.

It however, said that recent appointments of the central bank’s governing board would go a long way in strengthening it.The IMF added; “In the absence of timely corrective policy measures…risks in the banking system would continue to rise. Executive directors welcomed the recent improvement in Zimbabwe’s macroeconomic performance and humanitarian conditions . . . To solidify these gains, as well as to reduce financial vulnerabilities, it will be critical that authorities undertake decisive policy measures.”