ZIMBABWE’S public debt has largely been driven by arrears and penalties on existing debts, amid calls for the country to implement targeted economic, governance, and land-related reforms.
NATHAN GUMA
The country’s total debt soared to US$18.03 billion as of December 2022 from US$17.2 billion, with external debt constituting 70.9% (US$12.8 billion or ZW$8.78 trillion) while domestic debt constitutes 28.7% (US$5.2 billion or ZW$3.56 trillion).
With no budgetary support from traditional lenders such as international financial institutions due to non-payment of arrears, Zimbabwe has been mainly relying on grants, bilateral loans and domestic resources to finance its key capital projects.
The country has been failing to access lines of credit from key multilateral development banks, including the African Development Bank (AfDB), the World Bank, and the European Investment Bank.
An analysis by a social justice watchdog, the Zimbabwe Coalition on Debt and Development (Zimcodd), has shown that of Zimbabwe’s US$12.7 billion total external public and publicly guaranteed debt, principal arrears, interest arrears, and penalties alone constitute 54.9% (US$6.98 billion).
Creditors have been charging high penalty interest rates on late repayments, further ballooning the country’s debt.
Penalty interest on loans, also known as late payment interest or default interest, is an additional charge levied by the lender if a borrower fails to make their loan payments on time.
For instance, highest penalty rate for bilateral creditors is 12.2%, while the highest penalty rate for multilateral creditors is 10.5%.
According to Zimcodd, the debt default of the early 2000s, coupled with a shrinking economy, has attracted prohibitive penalties and subdued the capacity to service debts, thus trapping Zimbabwe in a debt overhang position.
“Also, due to these high debt arrears, access to concessionary loan finance has been blocked. As such, predatory creditors are taking advantage of Zimbabwe’s debt crisis by fueling debt expansion – mortgaging natural resources and mineral revenues,” Zimcodd said.
“In addition, the public debt report also shows that debt stock is driven by government debt guarantees, particularly in agriculture. For example, as of the end of September 2023, non-performing guarantees (NPGs) totalled US$198.01 million and ZWL3.1 trillion.”
The country’s debt has been highly unsustainable, consuming over 90% of the estimated 2023 national output (GDP), in violation of the Public Debt Management Act, which allows a debt-to-GDP threshold of 70%, lessening the country’s chances of servicing debt.
“Since a debt-to-GDP ratio shows a country’s capacity to repay its debts, a high ratio indicates that public debt is growing faster than national income. Thus, the country will have a low capacity to repay accumulated debt, a case for Zimbabwe, where about 74% and 81% of bilateral and multilateral debt are interest and principal arrears and penalties, respectively.
“This could indicate increased debt default risk for Zimbabwe — the probability that a borrower will not make the required payments on a debt obligation. In such instances, creditors may be deterred from lending money altogether or are more inclined to seek higher interest rates when lending.”
Due to high indebtedness, Zimbabwe has been relying on resource-backed loans – loans where repayment is made directly in natural resources or a resource-related income stream guarantees repayment.
For instance, the debt report shows that the government in February 2023 secured a US$400 million loan from Afreximbank for budgetary support and the financing of trade-related infrastructure, which is to be repaid using 35% of Zimplats’ export proceeds of platinum.
Zimbabwe, which has been part of the structured debt clearance dialogue facilitated by AfDB president Akinumwi Adesina and former Mozambican president Joachim Chissano, has been urged to implement crucial political and economic reforms, which have cut the country off the international radar.
In February last year, President Emmerson Mnangagwa told delegates attending the Zimbabwe Second Structured Dialogue Platform Meeting that the country is upholding tenets of good governance and democracy as part of efforts to resolve the debt crisis, which was largely disputed by opposition players and human rights watchdogs.
The country has been locked in a political quagmire since Zanu PF won the disputed 23 August general elections which were rejected by key observer missions, including the Southern African Development Community, over gross irregularities.
Electoral reforms are part of the reforms that critics have been calling for.
Since then, the country has been in election mode with controversial recalls of elected members of the main opposition Citizens’ Coalition for Change by self-proclaimed secretary-general Sengezo Tshabangu.
