The takeover of Reserve Bank of Zimbabwe’s debt by the Treasury coupled with the sharp depreciation of the domestic currency, will push Zimbabwe’s debt to well over $156 trillion by the end of this year — about 12 times higher than the 2022 level.
According to the official estimates from the Ministry of Finance and Investment Promotion, the country’s debt will grow to $144 trillion from about $12 trillion in December 2022. The volatility of the exchange rate in the first half of the year led to soaring debt as 71 percent is foreign-denominated.
The Zimbabwe dollar has lost its value by nearly 5 000 percent since the beginning of the year while the Treasury also took over the central bank’s foreign obligations.
In 2022, the external debt represented 71 percent of the public debt and this reflects the high foreign currency exchange rate risk of the public debt portfolio. Total external debt amounted to US$12,83 billion, comprising US$5,89 billion of bilateral, US$2,7 billion multilateral and US$4,24 billion debt contracted by the central bank.
During six months to June 2023, Zimbabwe received external loans amounting to US$919 million, according to the RBZ and this will add to the country’s foreign debt stock.
In 2022, about 28,7 percent of the public debt load was made up of Treasury Bills or bonds, blocked funds, arrears to service providers and compensation to former farm owners.
Blocked funds are now classified as domestic debt, following the assumption by the Treasury of these debts from RBZ, and settlement is done by the local companies.
Compensation of former commercial farmers, whose farms were acquired during the country’s land reform programme, is included in domestic debt, as these farmers were local residents at the time of acquisition of the farms, the Treasury said.
Debt is classified by the residence of the holder where debt from a foreign resident is classified as external, while debt from a domestic resident is classified as local.
Interest payments are expected at $1,1 trillion by year-end, from $8 billion in December 2022.
With 90 percent of Zimbabwe’s securities maturing in under two years, the Government says it will consider debt refinancing through the issuance of long-term bonds.
Debt refinancing — or replacement of the existing debt with new debt — is common for Governments even businesses and individuals. The old debt may be coming due, and the borrower may want to convert it into debt with a longer maturity period.
“The maturity profile of outstanding domestic debt securities indicates a high refinancing risk, with over 90 percent of securities maturing in under two years,” said the Treasury.
“To mitigate this risk, the Treasury is opting for longer maturities through the issuance of long-term bonds to finance infrastructure projects.”
There is also a wall on bond maturities of Treasury bonds for blocked funds, with the first batch amounting to US$412 million maturing in 2025, according to the Treasury.
“The exchange rate volatility has been pushing the national debt load (now forecasted to be more than the size of the country’s GDP) high and also pushing the cost of repaying,” Carlos Tadya, a Harare-based economist said in an interview.
“I don’t see a real fix to that because of risks related to the exchange rate given that about more than two-thirds of our debt stock is denominated the US dollars,” Tadya added.
Another economist, Gerald Musara, said for the Government to forecast a debt of as much as $156 trillion by year-end “probably indicates that there will be further depreciation of the Zimbabwe dollar; more money would be borrowed from external financiers, most likely the Afreximbank, which has been generous to Zimbabwe or the Government will borrow locally to finance command projects.”
Zimbabwe has already appointed the African Development Bank (AfDB) to lead the debt and arrears clearance strategy dialogue with its external creditors. However, some analysts have painted a gloomy picture of Zimbabwe’s prospects of re-engaging with the global community after several election observer missions’ preliminary reports red-flagged the manner the country held its harmonised polls.
Observer missions such as the Commonwealth, the Southern African Development Community (SADC), and the European Union (EU) concluded in their preliminary reports that the electoral process was not transparent and credible.
For instance, the SADC observer mission said the election fell short of regional and international standards while the EU said the polls were held under a “climate of fear”.
“I see that public debt reaching 130 percent of GDP, that is, 30 percent increase within a year — a massive and unsustainable debt overhang,” economist, Professor Gift Mugano said.
“What causes this high jump within a year? Now in view of the fact that we failed to pass the test on free and fair elections, which was one of the conditions required to secure debt resolution, what strategies will our beloved country implement to stop accruing more debt and resolve the debt crisis? Mugano added.