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Zimbabwe debt crisis remains precarious

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AN advisory firm, IH Securities (IH), says Zimbabwe’s public debt situation will remain precarious, with penalties on overdue loans mounting as the government currently does not have the capacity to service them.

According to the 2021 National Budget, external debt stood at US$8.02 billion as at September 2020, with domestic debt pegged at ZW$1.547 billion.

Although the ratio of public-debt-to-gross domestic product (GDP) improved from 88.1% in 2019 to a revised estimate of 78.4% in 2020, IH said this is notably above the 60% threshold recommended by the Southern African Development Community but also a reflection of the ongoing debt crisis in sub-Saharan Africa.

Domestic debt accounted for an estimated 1.8% of total public debt on account of government pro-actively implementing fiscal reforms and some increased debt service repayments.

However, external debt went up by US$106 million in the nine months ending September 2020 at US$8.02 billion.

Arrears amounted to over 77% of this balance with no concrete debt settlement plan.

“We foresee public debt remaining in a critical condition with penalties on overdue debt mounting as the government currently does not have the capacity to service them. The country risk will also make it difficult to access further loans which might end up driving up domestic debt figures,” the firm said in a report.

Third-quarter government revenue stood at ZW$57 billion, surpassing the targeted ZW$44.83 billion by 27.16%, and was expected to close the year at ZW$173.49 billion.

Statutory Instrument 185 of 2020, which legalised the use of a dual currency system, was aligned with the provision of Section 4(a) of the Finance Act requiring that tax be paid in the currency of transaction.
“Not all institutions have been compliant in this regard and we are still to see a corresponding uptick in US$ tax revenue,” IH said.

IH said the government revenue as a percentage of GDP is expected to take an upward trend and close 2021 at 14.51%.

The major expenditure outlay remains related to employment cost, which rose from 48% of total revenues in 2009 to a peak of about 78.3% in 2017, before receding to 61% in 2018.

Currently, employment cost as a percentage of revenue stands at 40.63% and is expected to remain in range until 2023 as government continues to rein in on spending, it said.

In light of the Covid-19 pandemic, IH said there might be downside expenditure risk in the form of further unanticipated emergency relief funding and social safety nets paired with pressure from labour unions for upward review of civil servants’ salaries.

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