ZIMBABWE’S failure to service its foreign debt is likely to hamper future development plans, with official statistics showing a surge in public debt, The NewsHawks has learnt.
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.
President Emmerson Mnangagwa has been at pains to paint a rosy picture of how Zimbabwe has been trying to service the country’s ballooning debt overhang, leading to the country’s failure to receive lines of credit from international financiers.
For instance, in February this year, 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 differs from the reforms being demanded by opposition players and human rights watchdogs.
“Under the governance pillar, my administration is unwavering in its adherence to constitutionalism, the rule of law and the tenets of good governance and democracy. We will ensure that our laws are applied consistently, without fear or favour.
“Zimbabwe will conduct free and fair elections this year, consistent with our constitution and electoral laws. In addition, human rights concerns are being addressed in line with our country’s laws and international conventions,” he said.
In its latest commentary on Treasury’s debt bulletin, accountability watchdog the Zimbabwe Coalition on Debt and Development (Zimcodd) says the external debt is likely to blight Zimbabwe’s future economic prospects.
“Zimcodd acknowledges the Public Debt Management Office’s (PDMO) quest for debt transparency through the publication of timely and comprehensive public debt statistics in line with the provisions of the Public Debt Management (PDM) Act,” read the report.
“However, we are concerned by mounting borrowing as shown by a 2.4% jump in total public and publicly guaranteed (PPG) debt from US$17.6 billion as of September 2022 to US$18.03 billion as of the end of December 2022.
“It is now impossible for the nation to meet all its current and future obligations without financial assistance or going into default as shown by mounting arrears. It is also worrying to note that 71% of total PPG debt is external debt.
“The current debt-to-GDP threshold far exceeds the NDS 1 [National Development Strategy] target of 61.5%, while international reserves cover only 1.1 months of imports against the NDS 1 target of six (6) months. Zimbabwe is indeed trapped in debt distress.”
Zimbabwe’s enormous debt overhang to foreign creditors has already left a trail of economic disaster, which Zimcodd fears may worsen.
“We are concerned that the country’s inability to service existing debts is having a toll on various facets of the economy. For instance, in the first half of 2023, economic agents experienced prolonged electricity load-shedding hours averaging 12 hours per day.
“The nation could not easily access available electricity imports from regional counterparts as it owed a staggering US$102.9 million in unpaid electricity imports as of the end of December 2022. This has greatly subdued industrial activity and overstretched household budgets as they had to look for expensive substitutes.
“Treasury borrowed US$249.73 million from Equatorial Guinea in 2005 to finance the procurement of ‘strategic imports’ with no further indication as to what the imports are.
“Apart from this, we also question the sustainability of some projects where borrowed funds are being invested. For example, investing in the expansion of airports at a time social infrastructure is crumbling and the majority of citizens are wallowing in abject poverty leads to questions on prioritisation,” read the report.
The report said the government’s failure to swiftly craft a debt resolution solution has worsened service delivery.
“We are concerned by the lack of improvement in debt servicing whilst Zimbabwe is engaged in the Structured Debt Dialogue process. This platform is a show of goodwill from creditors and has shown potential to chart a sustainable path going forward.
“We are also concerned with the accumulation of public debt as this is now crowding out public service delivery. For instance, the ZW$36.47 billion and US$63.97 million (about ZW$25.58 billion using an average official exchange rate of ZW$/US$399.86 realised in 2022) earmarked for servicing domestic and external debt respectively could have been used to provide crucial public services and strengthen safety nets at a time citizens were battling chronically high inflation averaging 184.1% in 2022.
“The hyperinflationary environment partly caused by Zimbabwe’s high indebtedness has also fed into borrowing costs as shown by the interest rate on 270-day Treasury Bills that ballooned from 24% in the first quarter of 2022 (1Q22) to a staggering 105% in the fourth quarter of 2022 (4Q22),” reads the report.