THE Zimbabwean government is likely to increase its borrowing in the second half of the year, as the country is facing spending pressures due to the instability of the local currency experienced in the first half of the year, The NewsHawks has learnt.
The country has been experiencing a wave of hyperinflation and currency volatility, with the Zimbabwe dollar significantly shedding value against the United States dollar.
The plunge has seen US applied economics professor Steve Hanke warning that Zimbabwe may soon degenerate to the catastrophic 2008 hyperinflation levels.
Zimbabwe was engulfed in hyperinflation in 2008, with monthly inflation climbing to 79.6 billion percent, while the annual rate of increase surged to 89.7 sextillion percent in mid-November 2008.
According to a weekly review by social justice watchdog, the Zimbabwe Coalition on Debt and Development (Zimcodd), borrowing is likely to increase in the second half of the year, with Treasury under pressure to cover the budget deficit.
The approved 2023 National Budget has an expenditure ceiling of ZW$4.5 trillion with a financing gap of ZW$575.5 billion that is expected to be covered through borrowing.
To cover the 2023 spending gap, Treasury announced plans to source an external loan facility (US$400 million), issue a domestic bond (US$100 million), issue Treasury Bills (TBs) (ZW$82.8 billion), and changes in bank balances (ZW$10 billion).
“However, Treasury will likely borrow more in the second half of the year (2HY23) than was initially anticipated. It is currently facing enormous spending pressures due to severe Zimdollar and price instability experienced in the first half of the year (1HY23), which has significantly reduced the real value of the approved national budget.
“Statistics show the Zimbabwe dollar is losing over 88% of its value in both foreign exchange markets in the first half of 2023.
“Domestically, the available statistics are showing a significant jump in Treasury Bills issuance. In monthly terms, issued TBs were up 9% in April 2023 to ZW$391.59 billion while in annual terms, they were up 512% from ZW$63.94 billion issued in April 2022,” reads the report.
Although the government has taken a head start in borrowing by securing a US$400 million external loan facility extended by the Abuja-based African Export-Import Bank (Afreximbank) last month, Zimcodd says unrestricted borrowing is likely to increase the country’s debt overhang.
“While borrowing to finance the budget gap is inevitable, Treasury must ensure that new borrowing is carefully set to keep the level of public debt on a sustainable path lest it fails to meet all its obligations without exceptional financial assistance or going into default,” reads the report.
Zimbabwe’s debt overhang is weighing heavily on the economy, as the country cannot borrow from multi-lateral institutions because of its failure to honour its obligations.
In February this year, African Development Bank (AfDB) president Akinumwi Adesina jetted into the country together with former Mozambican president Joaquim Chissano to the Second Structured Dialogue Platform Meeting on the Arrears Clearance and Debt Resolution Process, aimed at mapping closure to Zimbabwe’s debt.