Zimbabwe to extend debt maturities

Business Writer

Zimbabwe plans to gradually extend debt maturities and promote domestic investment in medium – to long-term Government securities by leveraging a projected stable macroeconomic environment, according to the Treasury’s borrowing plan.

The total budget financing gap for 2024 is $9,2 trillion, consisting of a $4,3 trillion budget deficit (1,5 percent of gross domestic product) and $4,9 trillion for loan repayments and maturing government securities.

The anticipated revenues are about $54 trillion against the expenditures at $58 trillion.

To address the total financing gap, Zimbabwe will rely on domestic and external borrowing. It will issue treasury bills and bonds totalling $5,8 trillion and external borrowing, $367 billion from existing loans and $2,9 trillion in new disbursements.

The Treasury said it is hoping that the long-term government bonds will attract investors due to the expected economic stability with low inflation and a steady exchange rate.

“The strategy is to gradually lengthen the maturities of Government securities going forward,” said the Treasury in its annual borrowing plan was prepared by the Zimbabwe Public Debt Management Office to operationalise the Medium-Term Debt Management Strategy (2022- 2025) by guiding the financing of budget deficit in 2024.

“Uptake for medium to long-term Government securities is expected to increase given the projected stable macroeconomic environment, which is characterised by low inflation and a stable exchange rate.”

The Government is pushing for a gold-backed domestic currency in a bid to combat currency depreciation and maintain inflation stability.

This follows the announcement by President Mnangagwa during the first Cabinet meeting that the country will adopt a “structured currency” to stabilise the economy.

Highlighting the desire for a stable currency, Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube, recently said achieving a stable currency could be atained by linking the exchange rate to asset like gold.

The Treasury said the Government will build a robust domestic debt market by issuing medium- and long-term Government bonds through auctions and private placements.

It will also encourage secondary market activity by promoting trading of these bonds by enforcing existing regulations requiring insurance and pension fund investments in government securities, emphasising concessional loans for minimal debt burden, while limiting non-concessional borrowing to strategically beneficial projects.

Despite projected successes due to projected economic stability and increased transparency in issuing government securities, the Treasury acknowledges potential challenges.

These include high borrowing costs as lenders perceive higher risk, leading to potentially expensive loans. The Treasury has also noted the refinancing risks and the ability to repay existing debt with new borrowings could be hampered.

The lack of access to international markets will restrict the pool of potential investors.