UNRESTRAINED borrowing remains one of the factors stifling Zimbabwe’s growth, according to a new report by the Zimbabwe Coalition on Debt and Development (Zimcodd).
Zimbabwe’s debt has ballooned to US$18 billion currently, from US$17,6 billion in December 2022, piling pressure on the country to find a solution.
Under a programme being spearheaded by the African Development Bank and former Mozambican president Joaquim Chissano, Zimbabwe is currently in talks with creditors to deal with the debt crisis.
But following the collapse of similar talks after a deal clinched in Lima, Peru in 2015, many have been sceptical that a solution will be found soon.
Sceptics’ fears have been compounded by last month’s ‘disputed’ polls, as lenders had indicated that undisputed polls will be part of negotiations.
In the report titled An Analysis of the 2022 Public Debt, Zimcodd said import dependency, which means the country sends out more US dollars to buy goods in foreign markets, and political instability continued to fuel debt in most developing countries.
“Many developing countries experience increased and frequent macroeconomic fluctuations due to a plethora of internal and external factors including political instability leading to civil wars; populist economic policies, import dependency and vulnerability to natural disasters driven by climatic changes,” Zimcodd said in the report released this week.
“For Zimbabwe, unsustainable public borrowing has now emerged as one of the biggest challenges stifling economic growth and development.”
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Zimcodd attributed the rise in Zimbabwe’s debt to the assumption of the central bank’s debts by Treasury.
“Treasury owes US$5,2 billion. Of this amount, 67,3% is compensation to former farm owners, 28,9% is blocked funds, 3,6% is Treasury Bills and bonds, and 0,2% is arrears to service providers,” it said.
“The increase in domestic debt between September 2022 (US$3,6 billion) and December 2022 (US$5,2 billion) is attributable to the reclassification of blocked funds as domestic debt following the assumption of these from the RBZ by the Treasury.”
Zimcodd underscored that Zimbabwe’s unsustainable debt, which constituted 99,6% of gross domestic product (GDP) by 2022, violated the country’s legislation.
“Zimbabwe’s total debt is now unsustainable as it consumes 99,6% of 2022 national output, contravening the provisions of the Public Debt Management Act requiring a debt to GDP threshold of 70%,” it stated in the report.
“Consequently, the nation is trapped in debt distress, that is, the inability to fulfil financial obligations, and debt restructuring is required.”
An economic crisis back home has hampered Zimbabwe’s efforts to service its debt obligations.
“This is evidenced by arrears and penalties constituting 52,1% of total external debt or 78% of combined bilateral and multilateral creditors estimated at US$8,59 billion,” Zimcodd pointed out.
“A high debt to GDP ratio indicates that public debt is growing faster than national income thus showing a very low capacity to meet financial obligations when they fall due.”
Due to the prevailing currency volatility underpinned by Zimbabwe’s depreciating local unit, the country’s effort to extinguish its debt stock has been difficult.
“Zimbabwe is exposed to an exchange rate risk as more than 70% of its total debt is owed externally thus denominated in global hard currencies,” Zimcodd stated.
“With a too volatile local currency, Zimbabwe is using more Zimbabwe dollars to service external debts.
“Hence, more resources will have to be provided for in the national budget, resources which would otherwise be used to provide crucial public services like education and healthcare as well as rehabilitating crumbling infrastructure, particularly in rural underserved, and marginalised communities.”
Compounding Zimbabwe’s debt crisis, the local think-tank cautioned, was the country’s dwindling international reserves to satisfy import requirements, commonly known as import cover (IC).
“The IC measures the number of months of imports that can be covered with foreign exchange reserves available with the central bank. Ideally, an IC of about six to 10 months is essential for the stability of a currency,” Zimcodd indicated.
“As such, Zimbabwe’s low IC illuminates her potentially high vulnerability in managing import requirements/external shocks.”
