Zim external debt to rise by US$3.5bn on compensation to white farmers

By Almot Maqolo

A weak economy, coupled with a lack of robust mechanisms for resolving the accumulation of external arrears, has made Zimbabwe to remain in a debt distress situation for a long time, a new report shows.

The southern African nation’s public debt has also been rising due to large fiscal deficits and quasi-fiscal activities conducted by the Reserve Bank of Zimbabwe (RBZ).

Budget deficits increased from US$185 million (0.9% of GDP) in 2014 to US$2.7 billion in 2018 (11.8% of GDP).

“Zimbabwe has been in arrears since early 2000 and has been unable to access funding from external creditors to the country’s failure to meet its debt service obligations,” an Annual Debt Management Report for Zimbabwe 2020 compiled by AFRODAD and Zimbabwe Coalition on Debt and Development (Zimcodd) shows.

As at end-2019, total public and publicly guaranteed external debt was estimated at US$10.6 billion (49% of GDP). About 57% (US$6 billion) of the outstanding external debt was external payment arrears.

“The government is still accessing funding from commercial sources (such as China Exim Bank), in some cases collateralized against future commodity experts.”

The report noted that: “External debt will increase by an additional US$3.5 billion that the government of Zimbabwe committed to pay as compensation to former white commercial farmers displaced during the fast track land re-distribution program.”

According to the Global Compensation Agreement of 2020, the government of Zimbabwe is expected to borrow the US$3.5 billion by issuing a long term debt instrument of 30 years maturity in the international capital markets.

“This will further worsen debt sustainability indicators and potentially complicate negotiations with external creditors to restore debt sustainability.”

The constrained access to external financial resources has contributed to the deteriorating economic environment characterised by low economic growth, high inflation rates, worsening terms of trade, among other economic indicators.

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