Zim domestic debt soars

Paul Nyakazeya



ZIMBABWE’S domestic debt has soared to $8,1 trillion, increasing by 22% in three weeks largely due to huge interest payments on borrowings through Treasury Bill i

nstruments.


The unprecedented rise in the government debt level, which is a 4 528% increase from the January figure of $175 billion, was fueled by huge interest payments, Minister of Finance Samuel Mumbengegwi said yesterday.


“Total domestic borrowings has amounted $1,96 billion. This raised the domestic debt to $8,1 trillion of which $6,1 trillion was related to interest,” Mumbengegwi said


The new debt level means that with an estimated population of 13 million, every citizen owes $623 076 to local banks and financial institutions.


Four in every five Zimbabweans is living below the international poverty benchmark of US$1 (about $250 000 on the parallel market) per day.


“In order to finance the 2007 budget deficit in the environment of limited external support, government borrowings increasingly relied on the domestic market.,” said Mumbengegwi.


The figure has a huge bearing on the returns that investors will be getting from the money market. The money market is bound to continue issuing investors with negative returns in the short-tem to minimise the harmful effects of the huge interest cost component on the debt figure.


“Of the $8,1 trillion, about 99,4% comprises short term Treasury bills as the prevailing hyper-inflationary environment continued to undermine government’s efforts to restructure public domestic debt towards long term maturities,” said Mumbengegwi.


According to figures from the reserve bank, outstanding treasury bills have been accounting over 95% of government debt.


The increasing government debt stock raised fresh fears of renewed turbulence in the crisis-sapped economy, battling high inflation currently topping 7 634,8 for July, a world record.


Interest payments accounted for 75,4% of total debt at a hefty $5,1 trillion.


The interest payments were for treasury bills, most of which were issued to the market at rates of between 500% and 550% during the first quarter of the year.


High interest rates helped to bloat government debt, analysts said, indicating that this had forced a major restructuring of debt in January from short-term debt to long-term debt.


That strategy had been carried forward into the second half of the year, with the reserve bank flooding the market with long-dated Treasury Bill papers of one year or longer tenors.


Indications are that the restructuring exercise was unlikely to be unsuccessful due to the market’s lack of appetite for long-term investments. Analysts this week said it was evident that the solvency of government was already seriously compromised by the current interest rates, and technically government finances will not be better with even a 2% rise in interest rates.


The debt stock was likely to rise further on increased borrowing by government to finance unbudgeted expenditure arising from promises by President Mugabe to subsidise manufacturers after ordering prices to be reduced by half.

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