Zim in public debt crisis
Zimbabwe is in a debt crisis, with unsustainable public and publicly guaranteed total external debt and large external debt arrears, which has brought the country to financial ruin, said the Ministry of Finance and Economic Development in its new blueprint the National Development Strategy.
For Zimbabwe, a high rising debt resulted in less public investments that fuelled economic growth while the austerity measures introduced by the government spread pain to citizens who endured tightening of financial conditions and a spike in taxes.
The latest National Development Strategy (NDS) has been developed for January 2021 to December 2025, whose theme is “Towards a Prosperous and Empowered Upper Middle Income Society by 2030.”
The NDS marks the end of the Transitional Stabilisation Programme (TSP) that was for 2018 to 2020.
According to the NDS, Zimbabwe’s total debt at the end of 2019 was estimated at ZWL$ 143 billion, which was 80.8 percent of the country’s Gross Domestic Product (GDP).
The debt was more than the targeted Public Debt Management Act of 70 percent.
Of this debt, domestic debt, including the Zimbabwe Asset Management Corporation ZAMCO’s – ZW$1.1 billion, stood at ZW$11 billion.
Total Public and Publicly Guaranteed (PPG) external debt position stood at US$8.09 billion and about 74 percent of that (US$5.97 billion) are arrears.
The finance ministry said managing public debt is critical in order to raise the required amount of funding while at the same time making sure it is sustainable.
“During the NDS 1 Period, public debt management will focus on achieving the following targets:- Maintaining public debt to GDP level below 70 percent by 2025 and Zero recourse to Central Bank borrowing.”
Debt resolution with creditors through the clearance of external debt arrears and debt relief will open new lines of credit for the economy, said the NDS report which is critical to the achievement of Vision 2030 goals.
“External debt arrear clearance and debt relief to restore sustainability will be considered in line with progress made with Government’ s engagement and re-engagement with the international community.”
“Managing new debt commitments would require a coordinated approach in line with Public Debt Management Act provisions limiting the Debt to GDP ratio to 70 percent,” said the NDS report.
The finance ministry said debt management over the NDS1 period would be guided by a Medium Term Debt Strategy 2and the Debt Sustainability Analysis indicators.
“The debt strategy will focus on maximising access to concessional financing. This debt strategy will make sure there is consistency between the capacity to service the debt and minimising costs with the objective of fiscal consolidation,” read the report.
Non-concessional borrowing is to only be contracted for commercially viable projects with a high rate return, such as infrastructure projects.
“The debt strategy will also incorporate private sector driven financing options to ensure debt sustainability,” said the NDS.
To make sure there is debt transparency, comprehensive public debt reports detailing the stock of public debt and its main features, would continue to be regularly published while the continuation of an Auction-Based treasury bills issuance regime would be based on an Annual Borrowing Plan and Issuance Calendar.
This is so because the government is borrowing mainly short-term which is costly, so
to reduce the cost of borrowing and deepen the capital markets, the finance ministry said during the NDS1 Period, it would target the issuance of medium to long term securities and listing of Bonds on the Securities Exchange Market.
“This will reduce the costs of domestic borrowing and create fiscal space for social expenditures and the capital budget. In addition, the Government remains committed to its engagement with IFIs through the IMF Staff Monitored Programme to achieve an amicable loan arrears clearance agreement,” read the NDS report.