THE World Bank says while Zimbabwe remains one of the few countries in Africa in arrears with the multilateral lender, several African countries may soon default on repayments to the international financial institution due to economic shocks caused by the outbreak of Covid-19 and Russia’s invasion of Ukraine.
BERNARD MPOFU
Zimbabwe, currently ineligible to access loans from the World Bank Group, owes the Bretton Woods institution nearly US$1.5 billion and has been arrears since the turn of the millennium. The debt-ridden government now relies on domestic resources such as taxes, debt instruments and expensive loans to finance some of its capital projects.
Official figures show that World Bank Group assistance to Zimbabwe totalled US$1.6 billion between 1980 and 2000. Direct lending was suspended due to non-payment of arrears.
However, the World Bank remains fully engaged through trust funds such as the Zimbabwe Reconstruction Fund (Zimref) and the Global Financing Facility.
Marjorie Musonda Mpundu, World Bank country manager for Zimbabwe, said several countries on the continent will feel the ripple effects of global geo-political developments.
“This number will keep on increasing until payment is made,” Mpundu said.
“Just note that Zimbabwe is not the only country that has been in arrears to the bank… Somalia is clearing its arrears now, finalising the Highly Indebted Poor Country process maybe next year and then Sudan started its arrears clearance in 2020. So they have started clearing. So Zimbabwe and Eritrea are the only countries in Africa now remaining. Given the global shocks that are happening and also some shocks in some countries, there will be a few countries that will be in arrears and will join Zimbabwe. Zimbabwe is not an outlier; there are few countries that are in that position.”
Experts say the country is expected to remain in debt distress in the absence of a comprehensive arrears clearance strategy aimed at debt sustainability in the post-Covid-19 pandemic era, sustained economic recovery and growth. Official figures show that Zimbabwe registered 6% growth in 2021 after enduring two successive years of economic contraction.
Official figures from Treasury show that the country remains in debt distress, with an unsustainable Public and Publicly Guaranteed (PPG) external debt overhang amounting to US$14.4 billion as at the end of December 2021.
The country has been unable to meet its debt servicing obligations and has, therefore, been accumulating external debt arrears since 2000, which are now estimated at US$6.6 billion as at the end of December 2021.
PPG external debt owed to the multilateral creditors, as at the end of December 2021, amounted to US$2.7 billion, of which US$1.5 billion is owed to the World Bank Group, US$711 million to the African Development Bank, US$358 million to the European Investment Bank, and US$66 million to other multilateral creditors.
On the other hand, bilateral PPG external debt as at the end of December 2021 amounted to US$5.6 billion, with US$3.9 billion owed to the Paris Club creditors and US$1.8 billion owed to Non-Paris Club creditors.
Arrears, according to the latest Treasury statistics, remain a major challenge to the economy, constituting more than 77% of total external debt. Almost all external debt owed to multilateral development financial institutions is now in arrears, (World Bank Group, US$1.4 billion or 88%, African Development Bank, US$681 million or 95% and European Investment Bank, US$344 million or 95%).
As part of re-engagement with international financial institutions and other creditors, the government in March 2021 resumed making quarterly token payments to the multilateral development banks, the World Bank (US$1 million), the African Development Bank Group (US$500 000) and the European Investment Bank (US$100 000).
Treasury also began making quarterly token payments amounting to US$100 000 to each of the 16 Paris Club bilateral creditors in September 2021, as a sign of its commitment to the engagement and re-engagement process with the international community.
The country is also facing serious debt service capacity challenges – liquidity challenges, as reflected by low debt service ratios (actual debt service to revenue and exports), while at the same time accumulating arrears. Experts say, looking ahead, the country will face similar challenges in debt servicing which requires on average US$140 million annually, hence, the need for debt restructuring.
According to the latest arrears and debt management strategy, Zimbabwe is pursuing both the HIPC model and seeking bridge financing to simultaneously pay off its arrears with the World Bank and African Development Bank.
