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No solution to US$12.1bn foreign debt

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ZIMBABWE has accumulated a foreign debt totalling US$12.1 billion to multilateral creditors, including compensation to former farm owners evicted in the 2000 fast-track land reform programme, as the country’s debt crisis continues.

As at the end of December 2020, total public and publicly guaranteed external debt amounted to US$12.1 billion including US$3.5 billion compensation for the dispossessed farmers.

This includes US$2.68 billion, of which US$1.53 billion is owed to the World Bank Group; US$729 million to the African Development Bank; US$356 million to the European Investment Bank; and US$68 million to other multilateral creditors.

Zimbabwe’s bilateral external debt amounted to US$5.75 billion, with US$3.78 billion owed to the Paris Club creditors and US$1.67 billion to Non-Paris Club creditors.

The country’s external debt has been a major hurdle in efforts to access foreign funding for capital projects and budgetary support. 

While the government continues to blame Western sanctions, which may partly be to blame for Zimbabwe’s failure to access foreign loans, the country’s inability to settle its arrears to multilateral institutions has been a major impediment for Harare. 

Zimbabwe has also failed to implement the International Monetary Fund (IMF’s) Staff-Monitored Programme (SMP), which would create a roadmap to the settling of arrears. 

The SMP, seen as a major step towards re-engaging international financial institutions, through implementing the necessary economic and financial sector reforms, suffered a major setback due to the government’s policy inconsistency. 

Apart from the foreign debt, Zimbabwe is also saddled with a huge local bill, due to its over-reliance on Treasury Bills and the government’s public debt assumption. 

As at December 2020, the public debt stood at ZW$705.6 billion (65.9% of gross domestic product), the bulk being external debt (97.6% of the total debt) with the remainder being domestic debt.

“However, Government signed a US$3.5 billion Global Compensation Deed for compensation of farm improvements to former commercial farmers. The amount will add to the debt levels when the former commercial farmers sign a cession agreement,” reads the statement accompanying the 2020 Economic and Fiscal Review. 

Despite claiming to record a budget surplus in 2020, government continued to rely on domestic financial and capital markets to meet short-term budget financing requirements.

As such, the government raised a total of ZW$7.85 billion through the issuance of Treasury Bills. The Treasury Bills were issued through the auction system, as well as through private placements.

“Of the ZW$7.85 billion raised, ZW$4.03 billion went towards health related COVID-19 pandemic expenditures, while TBS worth ZW$3.07 billion were issued to creditors to settle legacy debt. An amount of ZW$345 million went towards restructuring of existing Government debt, ZW$397 million towards grain importation and ZW$8.95 million for cashflow management and settling maturing Treasury Bills,” reads the review statement. 

According to the statement, the local financial resources were raised at an average interest rate of 8.2% in the first quarter,17.5% second quarter, 15% third quarter and 18.7% fourth quarter. 

Consequently, domestic debt stock as of 31 December 2020 stood at ZW$16.7 billion, up from ZW$9 billion as at December 2019, an increase of ZW$7.7 billion. 

The increase in the domestic debt was triggered by Treasury Bills raised to finance the budget, and the government’s legacy debt as well as domestic arrears.—STAFF WRITER 

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