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Zim sinks deeper into debt hole

TATIRA ZWINOIRA
THE government last year added US$6,45 billion to the public debt as the Treasury assumed the former white farmer’s compensation fund under domestic debt and the Reserve Bank of Zimbabwe (RBZ) legacy loans.

In the Treasury’s newly released 2021 Annual Public Debt Bulletin, public debt was ZW$1,86 trillion and using the end-of-year forex rate of US$1:ZWL108,66, this translates to US$17,15 billion.

In the comparative 2020 year, public debt ended at US$10,7 billion. Of this amount US$10,5 billion was external and US$204 million was domestic debt, according to the Zimbabwe Public Debt Management Office (ZPDMO). The central bank’s legacy loans and white farmer’s compensation that the Treasury agreed to pay amount to US$3,77 billion and US$3,5 billion, respectively.

“The stock of total Public and Publicly Guaranteed (PPG) debt (domestic and external) amounted to ZWL$1,86 trillion as at end of December 2021, including RBZ external debt and compensation of former farm owners,” ZPDMO said in the 2021 Annual Debt Bulletin.

“Of this total PPG debt, ZWL$1,45 trillion is external debt, while ZWL$412,9 billion is domestic debt.”

ZPDMO confirmed that the rise in domestic debt was due to the inclusion of compensation to  white former farm owners.

“The stock of domestic debt as at end of December 2021 increased to ZWL$412,9 billion, from ZWL$16,7 billion as at end of December 2020 — 14% share of GDP, in 2021, compared with 1,4% in 2020. This increase is due to the inclusion of compensation to former farm owners in domestic debt data,” ZPDMO said.

The ZW$16,7 billion converts to US$204,02 million using the 2020 end-of-year exchange rate of US$1:ZW$81,78.

“Compensation of former farm owners is included in domestic debt as these farmers were Zimbabwe residents at the time of acquisition of farms.

“Debt is classified by the residence of the holder or creditor, where debt from foreign resident creditors is classified as external, while debt from domestic resident creditors is classified as domestic,” the ZPDMO said.

In 2020, the government agreed to pay white farmers US$3,5 billion for pushing them off their land in favour of black owners with the Treasury officially assuming the debt in the 2021 Annual Debt Bulletin.

While the rise in domestic debt is due to the assumption of the farmers’ debt, the remainder of the US$6,45 billion equaling  US$2,84 billion, is related to the central bank’s legacy loans.

The legacy loans concern foreign currency that the central bank was unable to repatriate to external suppliers on behalf of local companies.

In total, the RBZ failed to repatriate funds for 484 firms based on the list of debtors listed in the Finance Bill of 2022 released earlier this year.

Total PPG external debt stock as of the end of December 2021 stood at US$13,35 billion, of which 42% is owed to bilateral creditors, 20% to multilateral creditors, and 37% is RBZ external debt (including blocked funds).

Arrears on external debt, which amounted to US$6,6 billion (49% of total PPG external debt), remain a major challenge to restoring debt sustainability and to the economy, resulting in the lack of access to official external financing, according to ZPDMO.

The ZPDMO reported that during the period from January to December 2021, Treasury made total external debt service payments amounting to US$59,30 million.

This comprised US$49,7 million for the active portfolio and US$9,60 million as token payments to the Multilateral Development Banks (MDBs) and Paris Club creditors. Government in September 2021, started making US$100 000 quarterly token payments to each of the 16 Paris Club creditors.

As of the end of May 2022, since the resumption of the token payments, US$8 million was paid to the MDBs and US$4,8 million to the Paris Club creditors.

In its weekly review, the Zimbabwe Coalition on Debt and Development (Zimcodd) said in the latest Arrears Clearance, Debt Resolution, and Restructuring Strategy released by ZPDMO, Treasury admitted that it was in debt distress.

Zimbabwe Coalition on Debt and Development

Zimcodd said it remains to be seen if the government would honour its debt strategy given that the success of all proposed options in this strategy is highly hinged on the full implementation of reforms.

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