‘Zimbabwe to remain in debt’
ZIMBABWE’S appetite for loans and the absence of a comprehensive plan to service both foreign and domestic arrears will result in the country being trapped in a debt crisis, a new report has said.
The report presented recently at the Zimbabwe Annual Multi-Stakeholder Debt Conference hosted by African Forum and Network on Debt and Development (Afrodad) and Zimbabwe Coalition on Debt and Development (Zimcodd) predicted that the country’s debt would continue to rise due to governance issues and more borrowing to fund large fiscal deficits and quasi-fiscal activities.
“Zimbabwe will remain in debt distress for a very long time. “There has not been detailed reporting of debt operations in Zimbabwe despite the information on debt contained in annual financial and annual budget statements presented to parliament,” Tirivangani Mutazu, a senior policy analyst at Afrodad said.
The report said without a comprehensive resolution of the ongoing debt crisis, the debt situation would continue to worsen and will inhibit the country’s development aspirations.
“The country’s public debt has also been increasing due to large fiscal deficits and quasi-fiscal activities conducted by the Reserve Bank of Zimbabwe. Budget deficits increased from US$185 million, which is 0,9 percent of GDP, in 2014 to US$2,7 billion in 2018, representing 11,8 percent of GDP,” Mutazu said.
The report was an Afrodad/Zimcodd initiative to provide stakeholders with consolidated information on debt developments in the country. Reginald Chaoneka, a debt analyst, said: “Currently there are no robust mechanisms for resolving the accumulation of external arrears.”
Chaoneka said debt resolution remained central to supporting the achievement of the government’s development objectives going forward as this would unlock the much-needed resources to address the huge infrastructure needs.
“The government should ensure policy consistency as this is an important aspect to communicating its commitment to reforms and effort to enhance economic stability and growth. “Borrowing should be guided by a Medium-Term Debt Management Strategy, avoiding ad-hoc borrowing to worsen the country’s debt sustainability and the government should limit collateralised external borrowing to preserve these resources for future generation,” Chaoneka said.”
“While the debt is necessary to assist in the country’s Covid-19 response to the economic and humanitarian impacts, it has the potential to further complicate negotiations with external creditors to restore debt sustainability,” Chaoneka further said.
The report said external debt would increase by an additional US$3,5 billion that the government of Zimbabwe committed to pay as compensation to former commercial farmers displaced during the fasttrack land redistribution programme.
According to the Global Compensation Agreement of 2020, Zimbabwe is expected to borrow the US$3,5 billion by issuing a long-term debt instrument of 30 3years’ maturity in the international capital markets.
Short-term debt instruments, particularly arrears, central bank advances and Treasury Bill issuance were used to finance the government.
This created a huge refinancing risk in the near term, exacerbating uncertainty in the government’s capacity to service its debt.
The government borrowing on the domestic market has been conducted through private placement from 2012 to 2019. This method of issuing government securities inhibits transparency in government’s domestic debt market operations and does not support the growth of the domestic securities market.