Zimbabwe feels heat as debt spirals

Broke Zimbabwe's failure to clear debt and arrears with bilateral and multilateral creditors is sinking the economy further as it fails to unlock the much-needed funding for major infrastructure projects.

This comes as the Annual Debt Bulletin 2019 financial year reported that the domestic debt closed 2019 at $8,8 billion while external public and publicly guaranteed debt amounted to US$8,1 billion.

The bulletin says disbursements from external creditors have declined due to this overwhelming debt burden.

It noted that external financing remains scarce due to the continued accumulation of external debt arrears.

It says the fiscal deficit was being primarily financed through domestic borrowing.

"re-engagement with international financial institutions (IFIs) and arrears clearance resolution remains critical in unlocking new external financing required for sustainable development," read part of the bulletin.

According to the report, disbursements from external creditors have been critically low during the last two decades, due to the accumulation of external debt arrears.

It says the year 2019 was no exception with total disbursement at US$59,96 million, comprised of US$7,26 million from multilateral creditors and US$52,7 million from bilateral non-Paris Club creditors.

The total disbursements in 2019 represent a 75% slump from the disbursements of US$242,5 million recorded in 2018.

"Government has been making payments to bilateral and multilateral creditors with active portfolios, in order to unlock new financing and in fulfilment of conditions for continued disbursements of loans and grants," the bulletin said.

"Government has also been making quarterly token payments to the three IFIs, namely, the World Bank Group, African Development Bank and European Investment Bank as a sign of its commitment to the re-engagement process."

Total token payments to the three IFIs amounted to US$6,4 million in 2019, while debt service payments to other multilateral creditors such as the International Fund for Agricultural Development (IFAD) and oPeC Fund for International Development amounted to US$5,7 million.

Payments to bilateral non-Paris club creditors providing new financing amounted to US$19,7 million and these include China and Kuwait.

Economist Rutendo Masawi said Zimbabwe needs to service its debt in order to attract new funding.

Masawi said Zimbabwe has no capacity to fully fund critical infrastructure projects and capitalise industry, hence the need to look beyond its borders.

"Unlocking external funding means the pool is bigger instead of relying on domestic funding," she said.

"As such, the government must do everything in its power to attract fresh lines of credit and foreign direct investment into the economy."

The high accumulation of arrears presents an increase in the risk premium, which makes borrowing costs higher to the country.

"The need to step up re-engagement can, thus, not be overemphasised," Masawi said, adding more sustainable ways of funding growth should be explored in order to avoid debt.

"Therefore, the government of Zimbabwe should gear up efforts to finance development through non-debt creating initiatives.

"This could be done through creating an environment, which is conducive to foreign direct investment inflows through implementing reforms that will improve the ease of doing business status of the country."

Markets analyst evonia Muzondo said the country's debt situation makes it unattractive for new funding.

Muzondo argued that there was need for the government to manage domestic debt well and allocate resources efficiently in order to unlock funding.

She argued that, internally, there is a significant amount of available resources just being put to waste through allocations to non-productive sectors.

"It is like you go to a bank trying to borrow yet there is evidence you cannot even manage your own finances, they will not lend you a cent," Muzondo said.