THE World Bank says Zimbabwe’s debt-to-gross-domestic-product ratio has spiked to 100% over the last few years, warning that the trend will be maintained as the southern African nation battles to clear arrears with international financial institutions.
Zimbabwe remains in debt distress and, while borrowing is limited, public debt has continued to increase that is driven by external arrears and legacy debt.
The government has taken over contingent liabilities of US$3.5 billion arising from compensation for a 2019 decision to impose exchange rate restrictions that blocked external payments to foreign suppliers and investors (“blocked funds”), and promised compensation to former farm owners from an early 2000s land reform initiative.
While this is an important way to help redress historical policy missteps, it meant public debt rose to over 100% of GDP in 2022 and 2023. In response, the authorities launched a Structured Dialogue Platform in December 2022 with development partners to help address Zimbabwe’s arrears clearance and debt resolution.
Victor Steenbergen, senior economist at the World Bank country office, told delegates attending the launch of the Zimbabwe Economic Update that the country is in distress.
“While fiscal deficits are low, we see that public debt is in distress and it has also continued to rise. There is also the accumulation of legacy debt,” Steenbergen said.
“So between 2018 and 2020, we therefore see quite a significant rise in the debt-to-GDP ratio going from about 40% to over a 100%. What is driving this in many cases is legacy debt.”
The debt-to-GDP ratio is the metric comparing a country’s public debt to its gross domestic product (GDP). By comparing what a country owes with what it produces, the debt-to-GDP ratio reliably indicates that particular country’s ability to pay back its debts.
The World Bank also noted that Zimbabwe’s current account surplus continues to narrow, reflecting external headwinds.
“Higher import prices in the face of slowing exports already narrowed the current account surplus in 2022,” the World Bank says.
“But the surplus has been narrowing again in 2023, as the trade deficit widens in the face of slowing remittances. Rebuilding the RBZ’s foreign exchange reserves will be essential if the impact of further global volatility on the economy is to be reduced. Yet, the RBZ has chosen to use Zimbabwe’s gold assets to issue gold coins and gold-backed digital tokens (ZiG), to allow the wider public to have access to an instrument for store of value and to stabilize the ZWL. As such, it may prevent the build-up of international reserves, and the economy remains exposed to external shocks.”
The World Bank sees Zimbabwe’s economy slowing down to 3.5% in 2024, as agricultural output is expected to suffer from depressed global growth, especially from China, predicted erratic and below-average rainfall caused by the El Niño weather pattern.
The weaker global demand for minerals will reduce the contribution of the mining sector to economic growth.
The continued implementation of economic reforms, including those outlined in the arrears clearance dialogue, will serve to cool down inflation and relieve exchange rate pressures, the World Bank says.