MEFMI assists Zimbabwe to conduct a debt reduction analysis

Zimbabwe has been accumulating external debt arrears since 2000, leading to suspension of financial support by all multilateral and traditional bilateral creditors. The prolonged accumulation of arrears has negatively impacted the country’s credit worthiness and economic performance. The existing outstanding arrears to multilateral development institutions make it impossible for Government to access concessional finance. As at end September 2018, debt service arrears were estimated at 80 percent of the total external debt stock of US$7.657 billion. 

Like in any developing country, financing needs are significant, and in the absence of concessional lines of credit, government has in recent years borrowed limited amounts from non-traditional bilateral creditors such as Brazil, China and India whose terms are non-concessional. Government has also defaulted on debt service payments to these creditors. Government has also resorted to domestic borrowing to meet some of its financing requirements, leading to a sharp increase in domestic debt from US$275.8 million in 2012 to US$9.625 billion as at end September 2018.

Recognising the role of external financing in supporting economic growth, the government of Zimbabwe has been re-engaging creditors to resolve its external indebtedness, including through clearance of external debt service arrears to the International Monetary Fund and token payments to some creditors. To support the re-engagement process, the government requested MEFMI for technical assistance to conduct a Debt Reduction Analysis from 27 November to 6 December 2018 in Kariba, Zimbabwe.  The main objective of the workshop was to assess whether Zimbabwe qualifies for debt relief under the Heavily Indebted Poor Countries (HIPC) and Multilateral Debt Relief Initiative (MDRI). The exercise also sought to evaluate alternative options available to Zimbabwe for arrears clearance. 

A total of 25 officials participated in the workshop, drawn from various departments in the Ministry of Finance and the Reserve Bank of Zimbabwe. The workshop was facilitated by Mr. Patrick Malambo (MEFMI Accredited Fellow, and former staff of the Bank of Zambia), Mr. Leslie Mkandawire (formerly of the Reserve Bank of Malawi and MEFMI Secretariat), Mr. Juan Carlos Vilanova (Independent Consultant from Spain) and Ms. Josephine Tito (MEFMI).

The main output of the workshop was a draft debt reduction analysis report and key recommendations for consideration by senior government officials. In addition, participants were trained on the use of Debt Pro, a system used for analysing the impact of alternative debt relief options on debt sustainability. MEFMI expects that the findings of the Debt Reduction Analysis will guide the Government’s efforts to secure comprehensive debt relief from the international community to restore debt to sustainable levels.