ZIMBABWE’S exposure to Chinese loans has surpassed the level of indebtedness to Paris Club members as the southern African nation looks East to counterbalance Western isolation triggered by non-payment of arrears and concerns over growing human rights abuses.
Harare has largely been relying on domestic resources such as taxes, debt instruments such as Treasury Bills as well as bilateral loans to finance some of its key projects.
The country is currently ineligible to access loans from multilateral creditors such as the World Bank after defaulting on repayments.
Authorities in Harare are now making token payments to creditors in an effort to normalise relations and access concessional funding in future.
According to the Public Debt Report, total Public and Publicly Guaranteed (PPG) debt stood at US$17.7 billion, as at end September 2023, of which external debt amounted to US$12.7 billion (72 per cent) and domestic debt of US$5 billion (28 per cent).
“China is the biggest Non-Paris Club creditor accounting for 95 per cent of the total Non-Paris Club external debt of US$2 billion,” the report shows.
“China’s stock of total external debt at US$2 billion, is lower than Zimbabwe’s total external debt owed to the five biggest Paris Club creditors, namely: Germany, France, United Kingdom, Japan and the United States. Non-Paris Club loans, including loans from China, were contracted after year 2000, while Paris Club loans were contracted prior to year 2000, when the country started to accumulate external debt payment arrears on its debt.”
The five biggest Paris Club creditors are Germany, France, United Kingdom, Japan and the US, with a combined external debt stock amounting to US$2.9 billion, accounting for 74% of the total Paris Club external debt.
Within the Paris Club external debt portfolio, penalties for these five biggest creditors account for 75% cent (US$1.5 billion) of total Paris-Club penalties.
“Of the bilateral and multilateral debt amounting to US$9.1 billion, US$7 billion or 76% are principal arrears, interest arrears and penalties,” the report shows.
“Bilateral external debt comprising of Paris and Non-Paris Club creditors amounted to US$6.0 billion, with principal arrears, interest arrears and penalties amounting to US$4.4 billion or 74%.”
What is the Paris Club?
The Paris Club is an informal group of official creditors whose role is to find coordinated and sustainable solutions to the payment difficulties experienced by debtor countries.
As debtor countries undertake reforms to stabilise and restore their macro-economic and financial situation, Paris Club creditors provide an appropriate debt treatment.
Paris Club creditors provide debt treatments to debtor countries in the form of rescheduling, which is debt relief by postponement or, in the case of concessional rescheduling, reduction in debt service obligations during a defined period (flow treatment) or as of a set date (stock treatment).
The origin of the Paris Club dates back to 1956 when Argentina agreed to meet its public creditors in Paris.
Since then, the Paris Club has reached 478 agreements with 102 different debtor countries. Since 1956, the debt treated in the framework of Paris Club agreements amounts to US$614 billion.