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medium termThe Government of Zimbabwe has made significant progress in building and strengthening public debt management capacity since 2011. This includes setting up a dedicated Public Debt Management Office (PDMO), adoption of a modern public debt management legislation, preparation and adoption of debt management procedures manuals, regular reconciliation of public debt database, installation of frameworks for debt data back-up, as well as staff recruitment and training. The new Public Debt Management Act promulgated in 2015 provides a comprehensive framework for public debt management, including requirements to develop and publish a formal medium-term debt management strategy based on public debt management objectives, an annual borrowing plan, and conducting annual debt sustainability analyses.

As part of efforts to ensure government debt management operations are guided by a formal debt management strategy as provided for in the new Act, the Ministry of Finance and Economic Development requested the MEFMI Secretariat for technical assistance in developing the country’s Medium-Term Debt Management Strategy (MTDS) and an Annual Borrowing Plan. A medium-term debt management strategy is a plan that the government intends to implement over the medium term to achieve a desired composition of the debt portfolio, which captures the government’s preferences regarding cost-risk trade-off. It operationalizes the debt management objective of ensuring government’s financing needs and payment obligations are met at the lowest possible cost consistent with a prudent degree of risk. An annual borrowing plan outlines how the desired strategy will be financed over the next budgetary period.

In response, a joint MEFMI-World Bank team provided the technical assistance through an in-country workshop held from 26 June to 7 July 2017 at Cutty Sark Hotel in Kariba. The objective was to assist officials prepare an MTDS covering the period 2017 to 2021, an annual borrowing plan for 2017, as well as enhancing the analytical capacity of officials to develop an Annual Borrowing Plan and MTDS that explicitly recognizes the relative costs and risks of alternative financing choices, taking into account linkages with other key macroeconomic policies, and consistent with achieving sustainable debt levels while facilitating domestic debt market development. The team comprised Mr. Stanislas Nkhata and Tiviniton Makuve (MEFMI Secretariat), Mr. Marko Kwaramba (World Bank Zimbabwe Country Economist), and two MEFMI Fellows – Mr. Michael Tukacungurwa (Bank of Uganda) and Leonard Thotho (Central Bank of Kenya). The team worked closely with over 30 officials from key institutions and departments involved in the public debt management process, notably the Accountant-General’s Office, PDMO, International Cooperation, Financial and Capital Markets, Internal Audit, Legal Services, Fiscal Policy and Advisory Services, National Budget, Public Sector Investment Programme and Reserve Bank of Zimbabwe.

The workshop was organized around a series of case studies and guided hands-on exercises to prepare debt and other relevant macroeconomic data for the MTDS and Issuance Plan Analytical Toolkits. Two main strategies were considered and assessed under a set of macroeconomic assumptions. These are: (i) continued accumulation of arrears; and (ii) arrears clearance through bridge financing. The latter strategy reflects Government’s existing strategy to resolve the country’s debt burden. The arrears clearance strategy was tested under alternative domestic and external financing scenarios using the IMF/World Bank Medium Term Debt Management Strategy analytical tool. The analysis indicated that implementing the strategy to clear arrears owed to international financial institutions would significantly reduce the country’s external debt burden in the medium term. This is premised on the country’s success in implementing an IMF supported economic reform programme, a prerequisite for securing comprehensive external debt relief from the Paris Club and other creditors. While increasing the share domestic debt is an option, its feasibility largely depends on demand side constraints. Hence, clearance of arrears is key to unlocking and ensure stable access to external sources of financing required to implement the desired strategy. The mission also noted that the effective implementation of the desired Strategy will depend on efficiencies gained from institutional reforms mentioned above as well as underlying improvements in cash management.

Government’s new medium-term debt strategy and annual borrowing plan, the main outputs of the mission, marks an exciting new chapter in the management of Zimbabwe’s sovereign debt. Nevertheless, transition towards the envisaged debt portfolio structure may take time to be fully realized due to the country’s limited access to stable sources of external financing and the modest size of its domestic capital market relative to the size of government’s gross financing requirements.