IMF Warns Failure To Compensate White Farmers Will Result in Zimbabwe Debt Ballooning

The International Monetary Fund (IMF) has warned, Zimbabwe’s failure to compensate white former farmers as per agreement will result in the country’s public debt bulging.
The Bretton woods institution also warned the Reserve Bank of Zimbabwe’s failure to fully compensate for losses incurred when the country embarked on currency reforms will exacerbate the situation.
In the 2022 national budget statement, Finance minister Mthuli Ncube stated that the country had an external debt burden of US$13,7 billion.
In July 2020, government signed a deal with white former farmers to pay them US$3,5 billion in compensation for improvements on farms taken over for resettlement under its often-violent land reform exercise.
The latest comprehensive 2022 Article IV Consultation report said the country’s consolidated debt was now projected at US$19,03 billion, which would further constrain its ability to access development funding.
“The external debt burden is excessive and the country is incurring external arrears,” the IMF said in a report.
“While the real value of domestic debt has fallen significantly given the high inflation, plans to settle unfunded liabilities related to blocked funds and a compensation agreement for displaced farmers aggravate the debt situation.”
Government’s agreement with white former farmers envisaged a 50% down payment within 12 months and full payment over a period of 48 months thereafter.
Government has so far paid US$250 million towards the compensation by providing shares in Kuvimba Mining Company to the displaced farmers.
The remainder of the compensation, about US$3,25 billion, is yet to be funded.
“Securing financing for the compensation is constrained by Zimbabwe’s lack of market access. In April 2021, the government appointed a financial advisory firm to identify possible financing instruments and funding options and expects a report on financing options by mid-2022,” the IMF noted.
“In the absence of financing, the unfunded US$-denominated liabilities from the farmers’ compensation agreement have been incorporated under external arrears as of end 2020 for the purpose of the DSA [Debt Sustainability Analysis].”
The Bretton Woods institution said in the absence of an agreed repayment schedule and financing, the US$2,5 billion of central government obligations stemming from blocked funds is treated as external arrears for the purposes of the DSA as of end of 2021.