FINANCE minister Mthuli Ncube yesterday revealed that Zimbabwe has breached its own Public Debt Management Act after borrowings surpassed the legal threshold of 70% of the Gross Domestic Product as the country struggles to extricate itself from the debt burden.
Official figures show that total external debt is estimated at US$8.2 billion as at end September 2020. This is an increase of US$106 million from the 2019 amount of US$8.09 billion and was mainly on account of penalties and interest arrears. Of the total external debt, 17% is owed by public entities through guarantees.
Arrears remain a major component of the external debt, at US$6.34 billion, constituting 77% of external debt
“Total Public and Publicly Guaranteed (PPG) debt is estimated at 78.7% of GDP by end of 2020. The debt stock is marginally above the SADC recommended threshold of 60% of GDP and the Public Debt Act threshold of 70% of GDP,” Ncube told Parliament during his 2021 National Budget presentation.
“Relative to other countries such as Italy, Greece, Japan, whose debt to GDP ratios is above prudential thresholds of 60% of GDP. This calls for Zimbabwe to pay more attention to managing its debt to avoid fiscal sustainability risks.”
Domestic debt as at 30 September 2020 was ZWL$12.5 billion, which is 1.2% of GDP and 1.8% of the total public debt, Ncube said.
“In 2020, domestic debt has been stable, reflecting improved management of the fiscus together with some increased debt service repayments. This was realised through implementation of the following measures: Zero recourse to Central Bank financing window including overdraft; Non issuance of Treasury bills to ZAMCO; continuation of issuance of Treasury bills through the auction system for price discovery, improve accountability and transparency; and no quasi- fiscal operations at the RBZ, hence no monetisation of the budget deficit.”
Zimbabwe has been struggling to access concessionary funding from international financial institutions due to debt albatross.
This has left the domestic debt market as is the major source of financing the budget deficit, as access to external sources remains constrained due to the accumulation of external debt arrears to creditors.
The pace of sovereign debt accumulation, according to the country’s debt report for 2019, has increased substantially in sub-Saharan African countries in recent years, raising concerns among observers that this could bring back the spectre of debt crisis.
According to the World Bank, the key drivers of debt build-up vary across countries and include exogenous shocks (such as commodity price volatility which hit budget revenues of commodity exporters); weak fiscal management and macro-economic policy frameworks to support growth; changing composition of debt towards more expensive sources of financing; high levels of public spending and, in a few cases, natural disasters and discovery of previously undisclosed debt.
However, Ncube recently told The NewsHawks that Zimbabwe was on course to settling its arrears. He said the country will resolve its debt and arrears settlement plan over the next five years after blaming the Covid-19 pandemic for retarding the process despite earlier plans that collapsed along the way due to a myriad of problems.
Zimbabwe went into arrears with international financial institutions such as the World Bank, the International Monetary Fund and African Development Bank at the turn of the millennium. This has disqualified it from accessing concessionary funding from the multilateral lenders.
Government sees the successful negotiation of a debt and arrears clearance programme with external creditors opening new lines of credit for the economy.
In 2015, Zimbabwe adopted the Lima arrears clearance plan which collapsed due to a lack of political will in adopting a raft of political and economic reforms.