ZIMBABWE is now running out of options to service future external debts as the outcome of the shambolic 2023 general elections continues to complicate the southern African nation’s prospects of resolving its longstanding debt-issue, market watchers and economic analysts have warned.
Zimbabwe’s debt-to-gross-domestic-product ratio has spiked to 100% over the last few years, amid warnings that the trend will be maintained as the country battles to clear arrears with international financial institutions.
The official total debt stock has soared to US$18 billion as of December 2022 from US$17.2 billion reported in the prior comparative period as the distressed economy struggles to extricate itself from the debt albatross.
Of the US$12.7 billion in total external PPG debt, US$3.6 billion are from the Reserve Bank of Zimbabwe.
Of that external debt, China accounts for US$2 billion, and US$1 billion of it relates to the Hwange Thermal Power Station units 7 and 8 plants, with a further US$153 million for the expansion and upgrade of Robert Mugabe International Airport.
These loans were provided by China Exim Bank. A further US$375 million was to be disbursed by this bank for Hwange 7 and 8 by the end of 2023. In the nine months to the end of September, Zimbabwe paid a total of just US$55 million to all of its external creditors, with US$8 million of that going to China Exim Bank.
“Zimbabwe’s poor poll credibility will make negotiations for debt forgiveness, additional lines of credit and diplomatic engagements particularly difficult with parts of the Western world,” First Mutual Wealth says in its Economic and Market Review.
“It is incumbent on the Government of Zimbabwe and policymakers to realise that the management of the economy will be that much more imperative as outside help will not be so forthcoming. The dollarisation of the economy will undoubtedly make Zimbabwe less competitive than its regional peers hence the value addition of mineral exports becomes that much more imperative in shoring up foreign currency reserves in the outlook.”
After several failed attempts to settle arrears with international financial institutions (IFIs) such as the World Bank and the African Development Bank (AfDB), which enjoy preferred creditor status, Zimbabwe, which has been struggling to access long-term concessional funding, adopted a new strategy which is led by AfDB.
But movement on this front remains sluggish due to waning international goodwill on President Emmerson Mnangagwa’s administration, experts say.
“Political tension post 2023 elections remains high. The recent recalls of elected officials by a faction of the opposition CCC plunges the country into another election cycle,” Fincent Securities says in its economic outlook.
“The accumulation of debt arrears has limited Zimbabwe’s access to external financing and kept public investment at low levels, further negatively impacting growth. On the structural front, significant support to agriculture in the form of agricultural inputs, cross-subsidies on electricity, and loan guarantees has meant less public finance for human capital development and public infrastructure.”
In 2023, Zimbabwe took on a new loan of US$400 million from Afreximbank at a rate of over 11% payable monthly but backed by 35% of Zimplats export proceeds which are controlled by the RBZ.
“It would appear to us that Zimbabwe is not in a position to take on any more external loans, as it is clearly finding it very difficult to service even the newer debts taken on over the past five years,” Imara Asset Managers chief executive John Legat says in a research note.
“Despite this, the budget is looking for further external loans of US$370 million in 2024 … The budget has allocated US$338 million to service this debt in 2024 of which US$80 million is interest. Bottom line in our view is that Government can ill afford to run a budget deficit going forwards and should return to cash budgeting or ‘eat what you kill’.
“Of further interest to us in the debt report was the concept of ‘asset recycling’ which would be undertaken with Africa50, a business that was established by the African Development Bank. The idea would be that initially Government would ‘hand over’ to Africa50 the three main airports in Zimbabwe and maybe the Harare/Beitbridge highway, in return for funds that could then be recycled into other infrastructure projects. This is a fascinating concept and one that we will keep a close eye on.”