Zimbabwe’s external debt stock, despite a very limited access to external sources of finance rose significantly between 2000 and 2018 owing to the accumulation of arrears, compounding effect of penalty charges on interest and principal arrears as well as new financing from alternative sources, latest data shows.
The southern African nation’s economy continues to suffer from the negative effects of the huge debt overhang, as evidenced by the continued accumulation of arrears on Public and Publicly Guaranteed (PPG) external debt. With longstanding external arrears, foreign financing has been scarce, with the fiscal deficits being primarily financed through domestic borrowings.
“In 2000, the country faced acute foreign currency shortages, emanating from the Balance of Payment (BOP) challenges, which resulted in the country defaulting on its external payment obligations. This led to the deterioration of the country’s relationship with external creditors,” Zimbabwe Public Debt Management Office (ZPDMO) stated in its latest annual publication.
As at end December 2018, Zimbabwe’s total PPG external debt amounted USD9.479 billion (including US$1.54 billion foreign liabilities of the RBZ). Total public external debt constituted 85% of the total external debt, while publicly guaranteed debt was 15%. Among the bilateral creditors, the Paris Club is owed 44%, while the Non-Paris club creditors make up 21% of the total PPG external debt. Multilateral creditors account for 32% of the total PPG external debt.
“Subsequently, there was a build-up of external arrears, with several creditors evoking contractual borrowing statutes by imposing remedial measures (sanctions) on Zimbabwe. The net effect was a significant decline in Zimbabwe’s ability to raise concessional and non-concessional finance from international financial markets.” The debt portfolio as at end December 2018 was largely exposed to the US dollar and the Euro, which accounted for 37% and 23% respectively.
Other significant currencies in the portfolio were AFU at 12%, SDR at 10%, JPY 4% and others 2% which include CHF, SEK and KWD. Zimbabwe’s PPG external debt portfolio which is mainly denominated by USD and EUR, exposes the country’s to the adverse effects of the foreign exchange rate movements, which has contributed to the changes in the stock of external debt over time. “A diversified currency mix, however, mitigates against exchange rate risks on the country’s external debt,” ZPDMO said.
The southern African nation’s total public domestic debt stood at USD8.4 billion (36.7% of GDP) as at end December 2018. Treasury continued to issue domestic debt instruments to meet its budget financing needs, with gross issuance peaking in 2017 at ZWL$ 2.982 billion. “Treasury has however, since taken a policy stance to limit the issuance of domestic debt securities by targeting a balanced budget.”
In 2014, the Treasury bills to GDP ratio was at 6.4% and this increased sharply to 44.5% by end of December 2018. Resultant, excessive issuance of short-term debt instruments at high interest rate increased Government’s recurrent interest expenditure. However, the government has formulated a holistic debt resolution strategy which seeks to pave the way for negotiating a comprehensive arrears clearance strategy and the provision of international debt relief from all creditors as enunciated under the key reforms in the Transitional Stabilisation Program (TSP) (October 2018 to December 2020).
Also, it took steps to strengthen Debt Management in Zimbabwe through enacting the Public Debt Management Act in 2015.</div>