Zimbabwe juggles US$1bn TBs to avert crisis

President Emmerson Mnangagwa's government is restructuring repayment terms for Treasury Bonds (TBs) as it grapples with escalating debt obligations and the looming threat of default. With nearly US$740 million in foreign currency-indexed, interest-bearing government securities set to mature between 2025 and 2034, Zimbabwe faces a critical financial challenge.

Official documents from the Zimbabwe Public Debt Management Office (ZPDMO) reveal that substantial maturities will occur this quarter, requiring Treasury to mobilize US$177 million by year-end. This figure is part of a larger portfolio of TBs valued at US$915 million, which the government is seeking to restructure to ease payment pressures.

The restructuring aims to extend repayment terms, adjust interest rates, and reduce payment amounts, ensuring fiscal sustainability while meeting debt obligations. The ZPDMO emphasized that the move is vital to prevent compromising public service delivery and economic growth.

"The restructuring process is critical in enhancing fiscal sustainability and ensuring that government can meet its debt obligations without compromising public service delivery and economic growth," the ZPDMO stated.

Zimbabwe's TBs, issued to raise short-term funding, have contributed to a staggering public debt burden equivalent to 59.7% of the country's GDP. Defaulting on these obligations has led to hefty penalties, compounding the pressure on a cash-strapped Treasury already contending with a weakening local currency.

Between January and September 2024, the government repaid ZiG52.7 billion in maturing TBs, alongside coupon payments of ZiG815 million. Additionally, US$54.4 million was allocated to blocked funds obligations during the same period.

The external debt stock, as of September 2024, stood at US$12.3 billion, with bilateral and multilateral creditors accounting for US$6.3 billion and US$3.2 billion, respectively. Notably, arrears and penalties dominate multilateral debt, with US$2.7 billion in outstanding charges owed to institutions such as the African Development Bank, the World Bank, and the European Investment Bank.

Asian financial institutions, particularly China Exim Bank and India Exim Bank, have played a significant role in Zimbabwe's debt profile. During the first nine months of 2024, Zimbabwe repaid China Exim Bank US$14 million, while Sinosure received US$4 million. These lenders have heavily financed key infrastructure projects, including the Hwange Thermal Power Station and the Robert Gabriel Mugabe International Airport.

Despite these repayments, state-owned enterprises reliant on government guarantees have struggled to meet their financial obligations, adding strain to the Treasury's liabilities.

Finance Minister Mthuli Ncube hinted in August at restructuring Zimbabwe's debt to manage the fiscal squeeze that has necessitated severe spending cuts. Recent measures include halting funding for international trips by state executives, reflecting the dire economic circumstances.

Ncube acknowledged the challenges posed by short-term borrowing preferences among domestic investors, which have driven up debt-servicing costs and strained resources for critical social and developmental programs.

While debt restructuring offers hope for alleviating Zimbabwe's financial woes, the outcomes remain uncertain. Persistent fiscal and external pressures, compounded by a fragile currency and limited access to concessional financing, continue to challenge the nation's economic stability.

Zimbabwe's ability to navigate these obstacles and restore fiscal health will depend on the effectiveness of its restructuring efforts and broader economic reforms. For now, the government's focus is on staving off insolvency while maintaining critical public services.