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The strange case of Zimbabwe’s IMF repayment

On 28 October 2016, Zimbabwe utilized part of its Special Drawing Rights (SDRs) to settle the US$108 million it owed to the IMF’s Poverty Reduction and Growth Trust Fund (PRGT), which funds were held and kept at the International Monetary Fund (IMF).

The timing of this payment and the payment itself is clearly absurd and irrational that all reasonable Zimbabweans have smelt a rat and cried foul.

In the eyes of many the regime and the IMF are clearly brewing yet again another shocker to prop up the former.
That process is being pursued as a last ditch attempt to save the all but dead Lima process which in the eyes of many was nothing but an excuse to finance an autocratic desperate and shameless rogue regime.

In 2011, the Zimbabwe Government tried to pay-off its debt to the fund using its SDRs but the same IMF refused for correct legal, economic strategic reasons.

It is, therefore, shocking and frightening now, six years later when Zimbabwe is now in a more fragile position that the Fund has changed its position.

The first objection by the Fund in 2011 was that the clearance of the IMF arrears when Zimbabwe has so many creditors amounted to an unfair and unlawful preferential treatment of one creditor against others

It is trite at law that an insolvent debtor in the position of Zimbabwe cannot make a special payment to one creditor at the prejudice of the other creditors.

Zimbabwe owes at least US$9 billion of which US$3, 4 billion is owed to Bilateral creditors mainly the Paris Club and US$2, 5 billion to multilateral institutions, namely the World Bank.

The World Bank is owed at least US$2 billion while the African Development Bank (AfDB) is owed US$550 million.

Under these circumstances, both domestic and international law would not allow preferential payment to one creditor.

The IFIs and the multilateral institutions themselves have a rule – the pari passu rule – which requires equal treatment of all creditors.

In paying the Fund in preference to others the rogue regime has clearly breached the pari passu rule.

More significantly, by accepting the money without the World Bank and the AfDB being paid, the IMF is complicit and in fact facilitating the breach of well established financial rules.
The question remains; ‘Why is the Fund doing this?’

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Secondly, Zimbabwe’s SDRs held at the Fund constitute the only balance of payment reserves that Zimbabwe has.

The Fund was, therefore, correct in 2011 to say that Zimbabwe should not deplete its reserves which were less than two weeks of import cover.

Until the recent withdrawal, Zimbabwe import cover consisted of SDRs left by the government of national unity (GNU) in the sum of US$360 million.

With the payout, Zimbabwe, therefore, has disastrous reserves consisting of less than one week import cover.
The Fund should be seriously concerned about this position.

One of the key functions of the Fund is to secure financial stability and global monetary corporation.  In this regard, the management of international trade payments commonly known as balance of payments has to be safeguarded.

The SDRs of the Fund were created as some form of reserve currency for balance of payment support.

In consciously diminishing Zimbabwe’s SDRs, the Fund has collapsed Zimbabwe’s already fragile balance of payment position.

Thirdly, now that Lima is dead, clearing arrears of the Fund without a new holistic plan is pointless, meaningless and a disaster.

With a debt of over US$9 billion, the sum of US$108 million is a drop in the ocean.

In our view, now that Lima is dead, a new debt strategy is required but one that is not foolish or reckless.

From the word Go, we argued that was Lima foolish and reckless to the extent that it was  based on Zimbabwe borrowing  heavily from one creditor to settle another creditor under circumstances of impossible and severe  budgetary constraints and toxic political context.

As we have argued before, Lima was bound to fail as it is not possible to have reforms without reformers.

Zanu PF is dishonest, predatory and rogue.  It has basically killed Lima through its failure to implement even the smallest modicum of reforms.

As recent as 12 September 2016, Cabinet reversed Patrick Chinamasa’s meaningless attempt to save a paltry $318 million of a budget deficit that is now 30% of the GDP.

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The policy announcement by the Government on 4 May 2016 proved beyond reasonable doubt that Zanu PF is dishonest.
More than anything else 4 May 2016, was decisive in killing Lima in absolute terms.

In our view, Zanu PF own its own cannot run this economy.  A new debt strategy will require a new Government.

The new debt strategy must ensure that Zimbabwe carries out fundamental structural reforms and at the same time it must be based on debt cancellation or debt relief.

In short HIPC implemented under a new credible Government, that is the NTA, is the only credible debt solution for Zimbabwe.

It is therefore, shocking that the Fund has accepted Zimbabwe’s repayment outside the context of any plan.
Our fear is that in Zanu PF and in certain quarters of the Fund, Lima is unfortunately still alive.

Now that the Fund’s arrears have been cleared, there are those who will stupidly and dishonestly push for Zimbabwe to access the Fund’s draw downs immediately.

We hope the Board of the Fund will not succumb to such unmitigated madness.

Zimbabwe is in a deep economic crisis arrested by deflation, stagnation and low productivity.

Zimbabwe’s current challenges do not require opportunistic shortcuts, more so with less than 18 months to an election.

We therefore, hope and pray that the IFIs shall not play football with the people of Zimbabwe and facilitate the funding of an incorrigible regime that is beyond reform.

It is time that the IFIs know that they cannot continue working against the interest of the  average Zimbabwean by continuing to support a fascist kleptocratic regime without respect to the rule of law and human rights.

The continued belief by the Fund that Zanu PF is normal and reasonable must now be vacated.

It is not.

Rogue states will always be rogue states.

And in Zanu PF, THE WORLD has one of the worst.

As we have argued before you can not put lipstick on a pig.

Enough is enough.

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