Govt’s debt-to-GDP ratio to rise

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THE government’s debt-to-Gross Domestic Product (GDP) ratio, seen rising to 94% in 2018, is expected to go further up to 117% in 2020, as monetary tightening and the associated rise in interest continue to heighten doubts on the sustainability of debt dynamics, the United Nations Conference for Trade and Development (UNCTAD) has said.

Melody Chikono

Debt-to-GDP is the ratio between a country’s government debt (measured in units of currency) and its gross domestic product (measured in units of currency per year). Government debt-to-GDP in Zimbabwe averaged 72,78% from 1990 until 2017, reaching an all-time high of 147,70% in 2008 and a record low of 31,40% in 2001.

Zimbabwe recorded a government debt equivalent to 77,60% of GDP in 2017.

Generally, government debt as a percentage of GDP is used by investors to measure a country’s ability to make future payments on its debt, thus affecting the country borrowing costs and government bond yields. The country has been battling with a huge debt which stood at close to US$20 billion as of November.

In its World Economic Situation and Prospects 2019 report, UNCTAD said government debt-to-GDP ratios for most southern African countries were expected to increase, with the exception of Angola, which managed to reduce government debt from 75% of GDP in 2016 to 48% in 2018 and is heading towards 30% in 2020.

“Meanwhile, government debt-to-GDP in Zimbabwe may rise to 94% of GDP in 2018, and further up to 117% in 2020. Monetary tightening in most developed economies and the associated rise in interest rates create doubts on the sustainability of debt dynamics in some countries,” UNCTAD said.

While the outlook for fiscal balances remains mixed, between 3,6% and 3,91% GDP growth is projected for Zimbabwe, but with a 3% drop in GDP per capita as the government is yet to deliver on promises of economic transformation.

This in line with the African Continental Free Trade Area (AfCFTA) which is likely to support the continent’s industrialisation and structural transformation agenda, as manufactured products make up 46% of intra-African trade and only 22% of Africa’s trade with the rest of the world, leaving significant scope for African countries to industrialise.

According to the United Nations Economic Commission for Africa estimates, the AfCFTA is expected to increase Africa’s industrial exports by more than 50% over a period of 12 years. This could promote the type of trade that would potentially create jobs for Africa’s growing youth population and establish opportunities for nurturing Africa’s businesses and entrepreneurs.

“Countries such as Zimbabwe are expected to increase by between 3,6% and 31,9% depending on the scenario. The outlook for 2019–2020 depends on developments in South Africa’s economy, which contributes about 60% of the economic output of the region. Despite some reported improvement, the outlook remains neutral to negative. Moving away from aggregates towards per capita numbers, the developments of southern African economies present an even more alarming picture. In 2018, GDP per capita in South Africa declined to 2012 levels. Zimbabwe will also record a decline in GDP per capita, with a 3% cumulative fall since 2013. The recent government change in Zimbabwe has so far not delivered,” UNCTAD noted.

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