Reform scepticism proves block to Zimbabwe debt settlement

By African Business

African Development Bank (AfDB) president Akinwumi Adesina became the latest top official to call on the government of Zimbabwe to respect human rights and put in place measures to facilitate free and credible elections at a debt restructuring meeting in Harare on 23 February.

“The governance working group would allow us to tackle and make measurable progress on critical issues of freedom of speech, human rights protection, and implementation of laws in line with the constitution, as well as the implementation of the Motlanthe commission of inquiry [see below] and compensation of victims,” Adesina told delegates.

“And we must show progress on the Zimbabwe Democracy and Economic Recovery Act (ZIDERA) [see below]. All of which should make for peaceful, free, and fair elections. They will also remove headwinds on our path to arrears clearance and debt resolution.”

The Harare meeting, which was Zimbabwe’s second structured dialogue platform meeting on arrears and debt clearance, was facilitated by former Mozambican President Joaquim Chissano, and attended by Zimbabwe’s President Emmerson Mnangagwa, finance minister Mthuli Ncube, officials from the AfDB and ambassadors from lender countries. It followed an initial meeting held in early December.

As of September 2022, Zimbabwe owed more than $14bn in external debt, including money owed to lenders including the International Monetary Fund (IMF), the Paris Club of creditors, the World Bank, AfDB and the European Investment Bank. The government has no access to new lines of credit.

Effect of sanctions

In his address, Adesina also argued that Western sanctions had played a role in creating Zimbabwe’s debt accumulation and arrears.

Zimbabwe has been subject to US sanctions since the passing of the ZIDERA by Congress in 2001. It came in the aftermath of Zimbabwe’s chaotic Land Reform Programme, which saw white farmers – until then the owners of much of the country’s most valuable agricultural land – dispossessed without compensation by Robert Mugabe’s government.

The stated aim of the act was to “support the people of Zimbabwe in their struggle to effect peaceful, democratic change, achieve broad-based and equitable economic growth, and restore the rule of law”.

Critics say that Mnangagwa, who ascended to power through a military coup which ousted Mugabe in 2017, has failed to improve the human rights situation or to implement political and economic reforms – the basic requirements for sanctions to be lifted by the US.

In 2018 at least six demonstrators were shot dead in Harare by the military during a protest over delays in the announcement of results in that year’s presidential election, while more than a dozen people were shot by law enforcement agents across the country in January 2019 following unrest over fuel price hikes.

A commission of inquiry led by former interim South African President Kgalema Motlanthe into the 2018 fatal shootings has reported to the government, but its recommendations are yet to be implemented.

Restoring rule of law is crucial

Stevenson Dhlamini, an economist and a senior lecturer at the National University of Science and Technology of Zimbabwe in Bulawayo, says that the absence of the rule of law is continuing to weigh on a resolution to debt talks and the prospect of attracting new sources of investment.

“The prevalence of the rule of law is pertinent to the country’s honouring of democratic privileges of its citizens and also good for attracting FDI. They are invaluable for the overall transformation of the country’s economy and the attainment of the Sustainable Development Goals.”

President Mnangagwa has been pushing for reengagement with Western countries and the US, but widespread scepticism remains over his government record. Jee-A van der Linde, an economist at Oxford Economics Africa, says Zimbabwe is keen to prove to investors that things are changing.

“Zimbabwe will be eager to draw a line under the long-running dispute and will hope it goes some way to normalise relations with the international community, especially with those countries whose citizens will benefit from the settlement, and, perhaps more importantly, with international finance institutions.”

Compensation for white farmers

The compensation of white farmers for the loss of land has been one of the key initiatives that Mnangagwa believes will help with the rapprochement.

In 2020, the government agreed to pay $3.5bn over 20 years in compensation to local white farmers, while foreign white farmers were allowed to apply to get the land back.

On the sidelines of the Harare meeting, finance minister Ncube said the country now intends to make the compensation payments over a period of 10 years, with the money raised through treasury bills. The hope is that a workable compensation deal for white farmers will allow for progress to be made with lenders on the debt talks.

Mnangagwa said his government is committed a plan to clear to clear $6bn in debt arrears in order to gain access to international loans. But given the ailing state of the economy – the IMF expects growth of just 2.8% this year – economists are sceptical that the cash-strapped government will be able to make rapid progress on its arrears at the same time as sustaining social spending and paying off the white farmers.

“The truth is the government does not have such resources and it may be the case in the coming 10 years,” says Victor Bhoroma, an economist based in Harare. “Ideally, debt repayment needs to be structured over a number of years so that the government can also provide public services such as basic health care, decent education, good roads and clean water, which may be a priority now.”

Costly deal

Dhlamini says that while compensation for white farmers will send a signal that the government respects property rights, the cost of the deal is likely to worsen the debt situation. Instead of taking on more debt, the government must intensify its taxation drive to support future expenditure, he argues.

Van der Linde agrees that raising new money on the international debt markets will be out of reach for the foreseeable future.

“It is incomprehensible that the government intends to tap into international debt markets at a time when global financial conditions have tightened considerably and when there are so many other pressing economic issues in Zimbabwe,” he says.

“Reworking the doings of the controversial ‘land reform’ process is long overdue, but Zimbabwe simply cannot afford to take on more credit.”

Dhlamini says that while it is still early to judge the likely success of the debt restructuring meeting, it is apparent it has set a tone that is indicative of a commitment to transform Zimbabwe’s debt landscape.

“However, if Zimbabwe does not address the fundamental macroeconomic imbalances, all the efforts to restructure debt will be impotent.”