ZIMBABWE’S total external debt rocketed by US$106 million to US$8,2 billion at the end of September, throwing the economy into further debt distress, according to Finance minister Mthuli Ncube.
The debt was estimated at US$8 billion at the same time last year.The unsustainable debt situation is one of the factors driving the country’s long running economic crisis, escalating poverty as funding that would ordinarily be reserved for social services have ended up being channelled into debt servicing.
In his 2021 National Budget presented yesterday, Ncube confirmed this dislocation when he said the steep rise in debt was on account of penalties and interest arrears.
Of the total external debt, 17% is owed by public entities through guarantees, he said.
“Arrears remain a major component of the external debt, at US$6,34 billion, constituting 77% of external debt,” Ncube said.
Multilateral external debt, as at end of September 2020, stood at US$2,65 billion, of which 90% are arrears. Arrears to the World Bank totalled US$1,33 billion, the African Development Bank US$689 million, the European Investment Bank US$329 million, while other multilateral creditors are owed US$28 million, Ncube said.
Similarly, the Treasury boss said bilateral external debt is estimated at US$5,56 billion, with arrears accounting for 71% of total bilateral debt. The debt owed to the Paris Club creditors stood at US$3,63 billion, while that to Non-Paris Club countries totals US$1,63 billion. Total public and publicly guaranteed (PPG) debt is estimated to reach 78,7% of GDP by the end of 2020. “The debt stock is marginally above the Sadc recommended threshold of 60% of GDP and the Public Debt Act threshold of 70% of GDP,” he said.
“Relative to other countries such as Italy, Greece, Japan, whose debt to GDP ratios is above prudential thresholds of 60% of GDP, this calls for Zimbabwe to pay more attention to managing its debt to avoid fiscal sustainability risks,” Ncube said.
Domestic debt as at September 30, 2020 was $12,5 billion (US$152,8 million), which is 1,2% of GDP and 1,8% of the total public debt.
“In 2020, domestic debt has been stable reflecting improved management of the fiscus together with some increased debt service repayments. This was realised through implementation of the following measures: zero recourse to the central bank financing window including overdraft; non-issuance of Treasury Bills to Zamco (Zimbabwe Asset Management Corporation),” he said.
Ncube said disbursements of external loans to public institutions from January to September 2020 amounted to US$47,04 million. These include funding for the Hwange 7 & 8 rehabilitation project, the Robert Mugabe International Airport, the poverty alleviation project, the first education project, the smallholder irrigation revitalisation project and the TelOne backbone network. In 2021, external loan disbursements are projected at US$426,6 million.
These will also be channelled towards the Hwange 7 & 8 Thermal Power Station Expansion Project, the NetOne expansion project phase IV, the urgent response operation to fight Covid-19 and other projects.
The International Monetary Fund says Zimbabwe is in debt distress, and has warned that this will militate against economic recovery.