Financing Woes for Zimbabwe as it Tackles the Spectre of Covid-19

Gorden Moyo
Harare, 19 de Maio de 2020

Covid-19 landed on the shores of Zimbabwe when the country was already facing a trilemma of debt distress, chronic drought, and the lingering aftermaths of the Cyclone Idai which, in February 2019, left 270 000 people homeless. What is unsettling is that the spectre of the coronavirus has already upended the country’s public health care system, deepened the economic headwinds, and eroded the livelihoods of millions of poor and vulnerable people. As at 19 May 2020, the country has recorded 46 confirmed cases of coronavirus infections, 4 deaths, and 18 recoveries as well as 28 019 tested cases (I) However, at this stage, it remains unclear whether these low figures reflect reality or a lack of robust testing, hence underreporting.

As a way of containing the spread of the pathogens, Zimbabwe closed its borders, airports, schools, universities, colleges, public gatherings, churches, and mosques. The ban was also extended to formal and informal industries as well as non-essential retail services. However, the lockdown measures have resulted in unintended consequences such as disruptions of millions of people’s livelihoods especially amongst the poor and the vulnerable. Specifically, the lockdown has essentially turned the homes of the poor into some kind of starvation camps hence many of the informal traders, hawkers, and street vendors as well as the self-employed people have found it difficult to obey the regulations to the extent that government had to use the military to enforce the social distancing and travel bans (II). At the broader level, the country has seen a drop in foreign currency earnings as a result of the slump in mineral exports, travel and tourism revenues, as well as diaspora remittances (III).

Accordingly, Zimbabwe requires massive liquidity and financial support to respond to the immediate fall-out from the pandemic and its public health and economic repercussions. The most urgent resources are needed for stepping up surveillance, testing, personal protective equipment, masks, and hospital beds as well as for quarantining scores of Zimbabweans who being deported from South Africa and Botswana in recent weeks. Additional funding is required to provide direct in-kind or cash transfers to households and individuals and food subsidies. Sadly, the government of Zimbabwe’s fiscal space is too weak to weather the coronavirus crisis.

Not surprisingly the government launched a US$2.2 billion domestic and international humanitarian appeal covering the period April 2020 to April 2021 (IV). At the same time on 30 April 2020, government announced a US$360 million (ZW$18 billion) Covid-19 Economic Recovery and Stimulus Package to cushion the private sector. Apparently this package is 9 percent of GDP and 28.6 percent of the 2020 National Budget. However, there was no indication of the sources of the US$360 million stimulus package prompting the former Finance Minister, Tendai Biti to dismiss the whole Covid-19 Economic Recovery and Stimulus Package as fictitious (V). Apparently government has resorted to money printing in order to raise the stimulus package. The Reserve Bank of Zimbabwe (RBZ) has reported that it will be releasing ZW$600 million of new bank notes under the pretext of easing the liquidity crisis in the country. Unfortunately, money printing will create worse financial and economic woes for the country than it is hoping to resolve.

Arguably, the biggest albatross against the containment of Covid-19 in Zimbabwe is the country’s external debt overhang. As the latest joint World Bank-IMF Debt Sustainability Analysis has indicated, Zimbabwe is currently in debt distress (VI). This assertion is confirmed by the statistics from the Reserve Bank of Zimbabwe (RBZ) which show that the public debt stock is unsustainable with domestic debt growing by an alarming 2 789 percent between 2013 and 2019 from US$0.36 billion to US$10.4 billion respectively (VII). At the same time, external debt has grown by 27 percent over the same period from US$10.22 billion to US$13.13 billion. As a result, the country’s GDP/debt ratio has rallied from 49 percent to 75 percent as at end 2019.

Zimbabwe has a long-standing legacy debt to the World Bank Group (US$1,5 billion), the African Development Bank (US$700 million), and the European Investment Bank (US$350 million) along with the Paris Club and non-Paris bilateral creditors. Despite clearing its arrears with the IMF in 2016, Zimbabwe is still unable to access financial resources from this primate financial institution simply because the rules of the multilateral creditors do not permit any of them to lend to any defaulting country or entity. It was therefore hardly surprising that the IMF excluded Zimbabwe from the list of countries earmarked to benefit from the revamped Catastrophe Containment and Relief Trust (CCRT). In the same vein, it is not surprising that the country is not a candidate for the concessionary loans offered by the World Bank Group and the debt standstill offered by the G20 countries.

By and large, Zimbabwe’s financial woes are traceable to the country’s international isolation under the former strongman Robert Mugabe who was ousted by the military in November 2017. Sadly, the successor government of Emmerson Mnangagwa has failed to normalise its relations with the rest of the international community in order for the country to enjoy its full rights as a member of the international comity of nations. This is because the cases of human rights violations, abduction of political opponents, electoral smithing, and corruption among others have continued unabated in the Mnangagwa administration despite its rhetoric on ‘a listening government’, ‘a new dispensation’, ‘a Second Republic’ and ‘Zimbabwe is Open for Business’.

In this context, Zimbabwe remains isolated with limited options for emergency funding for fighting the coronavirus crisis. Perhaps, the glimmer of hope for the country is in the issuance of additional Special Drawing Rights (SDRs) by the IMF. This hope is based on the fact that at the height of the global financial crisis in 2009, the IMF issued additional SDRs to boost liquidity in the international system. Despite the fact that Zimbabwe was a serial defaulter to its creditors, it got its allocation of 500 million SDRs. However, despite the fact that the coronavirus’ economic woes are far much greater than those of the 2008/9 global financial crisis, the Trump-administration is opposed to the issuance of additional SDRs arguing that these will provide huge financial succour to countries like Venezuela, Iran, Cuba, China, and Zimbabwe that would probably use the resources for suppressing their citizens rather than containing the global pandemic.

Given Donald Trump’s views on China’s handling of the origins of the virus, it will be probably easier for a camel to pass through the eye of a needle than for the Trump-administration, which has controlling rights of the IMF, to authorise the issuance of additional SDRs. In this context, full and irrevocable debt cancellation is the next option for Zimbabwe. This is the fastest way to free up existing public resources for the vulnerable countries. While Zimbabwe will not directly benefit from the cancellation because it has already been defaulting, external debt cancellation would probably give the country the breathing space and public confidence to better address the Covid-19 crisis.

But still, debt cancellation is a more controversial financing mechanism likely to be resisted by both multilateral and bilateral creditors. This is because Zimbabwe owes an undisclosed amount to China which is likely to have a free-ride on Zimbabwe if its debt is cancelled. Some African countries that benefited from the Highly Indebted Poor Countries (HIPC) initiative and the Multilateral Debt Relief Initiative (MDRI) in the 2000s went on to use their new found creditworthiness to contract more debts from the international financial markets and China and they are now debt distressed again. Thus, debt cancellation will need a general consensus among all Zimbabwe’s creditors in order to avoid free riders and debt vultures from the benefiting from debt forgiveness. The consensus may take long to come by.

And yet, Zimbabwe needs some emergency funding. At the moment, the country’s fight against Covid-19 is sustained by humanitarian assistance and donations from the EU, China, the United Arab Emirates, the UK, and the U.S. as well as from the private corporations and philanthropists. Interestingly, the World Bank has recently approved a grant of US$7 million towards combating the coronavirus in Zimbabwe. This gesture, though small is welcome because it is not a debt-inducing financing mechanism. Unfortunately, institutions of accountability in Zimbabwe are very weak to safeguard against the abuse of these donations and grants. To be sure, the country is a victim of corruption, illicit financial flows, and mismanagement. It is estimated that Zimbabwe has lost over US$15 billion over the last ten years through illicit financial flows.

As such, there are legitimate concerns that the contributions towards fighting Covid-19 will be abused if strong accountability measures are not urgently put in place. It is in this regard that civil society should be supported for calling for an Independent Covid-19 National Fund Trust. The Trust should have the mandate of managing, administering, and reporting on all the resources collected and used for fighting the coronavirus in Zimbabwe. This will provide the much needed public trust and confidence on public finance management. Currently, all contributions are made to the President at the State House with no monitoring and accountability mechanisms in place. His government is yet to earn trust from both the citizens and the international community except for Beijing which is probably the main bilateral creditor and investor in the country today.
Lastly, Zimbabwe will need to enhance its own domestic resource mobilisation strategy rather than hoping for alms from elsewhere. There is little doubt that the prioritisation of domestic resource mobilization could provide the much needed financial imprimatur to confront the lingering problem of fiscal sustainability and debt vulnerability as well as contain the human and economic costs of Covid-19.

(I) Report by New Zimbabwe. www.allafrica.com/stories/2020/19/05/Zimbabwe-Zim-COVID-19-cases-rise-to-46
(II) High Court ordered the soldiers, police and other state security agents to respect human rights, the dignity of people and their fundamental freedoms and rights while enforcing the country’s national covid-19 lockdown regulations. www.voazimbabwe.com
(III) ZIMCODD. 2020. Zimbabwe COVID-19 Response Mechanism: The Resource Factor
(IV) ibid
(V) Online New Zimbabwe newspaper (5 May 2020).Mnangagwa’s $18 billion COVID-19 package ‘Fictitious-Biti. www.newzimbabwe.com
(VI) World Bank.2020. Zimbabwe-Joint World Bank-Bank Debt Sustainability Analysis. Washington, D.C., World Bank Group. www.documents.worldbank.org/curated/en/643231584980476945/Zimbabwe-joint-World-Bank-IMF-Debt-Sustainability-Analysis
(VII) Zimcodd, 2020.