ZIMBABWE’S borrowing trends are set to increase in 2023, with the National Budget having an overall deficit of ZW$336.8 billion (1.5 per cent of GDP) and total financing requirement of ZW$585.5 billion, the Borrowing Plan and Issuance Calendar has shown.
The borrowing plan, prepared by the Zimbabwe Public Debt Management Office (ZPDMO), contains forecasts and statements on public debt management operations.
The 2023 projected financing requirement is to be met through gross issuances of Treasury Bills amounting to ZW$82.2 billion and Treasury bonds of ZW$95.2 billion, according to the borrowing plan.
“The gross issuances of Treasury securities include the United Stated dollar denominated bonds of US$100 million to be issued in tranches through the Victoria Falls Securities Exchange (VFEX) for infrastructure development (roads rehabilitation and irrigation infrastructure).
“The projected tenors of the US$ denominated bonds are 3 to 7 years. In addition. External loan disbursements of US$418.5 million (equivalent of ZW$398.3 billion) are projected in 2023. These will be through a pipeline loan from the Afreximbank amounting to US$400 million.
“The pipeline loan from Afreximbank will go through the approval processes, including ratification by Parliament,” according to the borrowing plan.
Other external disbursements are expected to come international developmental organisations.
“Others will come from (Opec Fund for International Development) OFID Smallholder Irrigation Revitalisation Project (SIRP) (US$4 million), International Fund for Agricultural Development (IFAD) Smallholder Agriculture Cluster Project (SACP) (US$5.25 million), IFAD Horticulture Enterprise Enhancement Project (HEEP) (US$3 million), OFID Smallholder Agriculture Cluster Project (SACP) (US$ 1.2 million) and BADEA Urgent Response Operation to Fight Covid-19 (US$5 million),” according to the report.
ZPDMO says the borrowing plan is set to be reviewed semi-annually, while the Issuance Calendar will be reviewed quarterly to ensure consistence with the changing market trends, while a separate quarterly Issuance Calendar will be published at the beginning of each quarter.
“The main policy thrust is to ensure development of the domestic debt market by continued use of the Treasury bills auction system for price discovery and development of the secondary market through issuance of medium to long-term Treasury bonds, as well as enforcing compliance of the prescribed asset status by the Pension and Insurance companies,” reads the report.
The country is forecasted to face challenges in borrowing spurred by high cost of borrowing, competing instruments in the market with United Stated dollar features, refinancing risk and shallow investor base.
Zimbabwe has also been facing challenges borrowing from international organisations like the International Monetary Fund (IMF) due to a bulging national debt.
In September last year, IMF ruled out providing financial assistance to Zimbabwe, after a staff mission to the country “precluded from providing financial support to Zimbabwe due to unsustainable debt and official external arrears”.
Whilst Zimbabwe cleared its arrears with the IMF, the organisation said the high debt levels and arrears with other financial institutions prevents it from further extending more loans.
The IMF recommended that the central bank’s direct fiscal policy should contain the deficit in line with available non-inflationary financing, and creating fiscal space for critical spending.
“This can be achieved by mobilising additional revenues, based on tax policy reforms, and by scaling back non-priority outlays, while strengthening public finance management,” read the report by the IMF mission to Zimbabwe.
As previously reported by The NewsHawks, Zimbabwe’s borrowing procedure has been shrouded on controversy, with Parliament’s Public Accounts Committee demanding answers over Treasury’s decision to borrow US$88 million to fund the construction of the Mbudzi Interchange in Harare, despite having previously allocated US$144 million from International Monetary Fund (IMF) Special Drawing Rights.
The interest rate on the US$88m loan has been pegged at the London interbank offered rate plus 5% per annum, with a grace period is a period of nine months on the principal amount and a final maturity date for the loan being 6 June 2025.
Government has also borrowed a US$360.5 million loan from PIM Nominees, which holds a tiny stake in CBZ, rehabilitation for the construction of the Harare-Kanyemba Road over the next five years.
According to the Government Gazette of 8 February 2023, the loan agreement between the government of Zimbabwe and PIM Nominees (Private) Limited was entered into in terms of section 300(3) of the constitution of Zimbabwe, as read with section 18(2) of the Public Debt Management Act [Chapter 22:21].
With the budget having a deficit, the country, indications are that the country is likely to increase its borrowing.