Zimbabwe’s Public Debt Remains Unsustainable

Zimbabwe is still facing the challenges associated with having a high public debt burden. The public and publicly guaranteed external debt stock was estimated at US$7.1 billion as at the end of 2015, representing 52 percent of Gross Domestic Product. External arrears accounted for 80 percent of external debt and include penalty interest charges. Continued arrears accumulation not only constrains the Government’s access to external financing but also discourages private investment, which is necessary to unleash Zimbabwe’s growth potential. Domestic debt, estimated at US$1.9 billion (14 percent of GDP) as at end-2015, is also a challenge because it comprises mostly short term debt instruments that have high interest rates.

Addressing the debt burden requires concerted efforts, both locally and internationally. In preparation for debt resolution negotiations with creditors, the Ministry of Finance in Zimbabwe organized a Debt Sustainability Analysis (DSA) workshop from 14 to 24 March 2016 at Kadoma Ranch Hotel in Zimbabwe. The Head of the Zimbabwe Debt Management Office (ZDMO), Mr. John Mafararikwa, officially opened the workshop.

In his remarks, Mr Mafarikwa said that the DSA was organized at a time when Zimbabwe had achieved several milestones that are necessary for re-engaging the international community, including successful implementation of the IMF Staff Monitored Programme as well as other socio-economic policies. He noted that it was necessary for the Government to conduct a DSA whose findings would be used to strengthen the Government’s case for comprehensive debt relief during negotiations with creditors. He urged the participants to conduct the DSA diligently in order to obtain realistic results of Zimbabwe’s debt sustainability.

The results of the DSA exercise indicated that Zimbabwe’s external debt remains unsustainable and the country would only regain debt sustainability after obtaining total debt relief from both multilateral and bilateral Paris club creditors.

Based on these findings, it was recommended that the Government should negotiate for comprehensive debt relief from its creditors otherwise Zimbabwe’s external debt would continue to be unsustainable. In addition, the Government should continue its reform agenda of improving the quality of its socio-economic policies and institutions which play a critical role when it comes to the country’s debt carrying capacity.

MEFMI Accredited Fellows Mr. Stanislas Nkhata, Programme Manager in the MEFMI Debt Management Programme,Dr. Nebson Mupunga and Dr. William Kavila of the Reserve Bank of Zimbabwe facilitated the DSA workshop, which attracted a total of 33 participants. The workshop was attended by officials from the departments of Public Debt Management, Public Sector Investment Programme, Fiscal Policy and Advisory Services, Revenue and Tax Policy, International Cooperation, Financial and Capital Markets and Accountant General’s office in the Ministry of Finance and Economic Development and from the departments of Economic Research and Capital Markets in the Reserve Bank of Zimbabwe.