daniel chigunwe
Business Writer
Zimbabwe has been listed by the World Bank among countries saddled with the highest debt burden, which the global lender says continues to consume significant resources, depriving key areas such as key infrastructure, human capital development and health.
Although the country registered marked improvement in its Government debt to gross domestic product (GDP) from 96,6 percent last year to 87,2 percent in 2024, the World Bank contends that the debt level remains too high and a detriment to national development.
The country’s debt situation remained largely stagnant between 2009 and 2019, at only 38 percent of GDP from 2010 to 2019, but registered an astronomical increase to reach 100 percent of GDP by 2022.
While Zimbabwe’s debt-to-GDP ratio remains largely unsustainable, several countries in the region are facing even more painful debt burdens, chief among them Eritrea, whose debt to GDP stands at 210 percent.
Other sub-Saharan countries that rank above Zimbabwe in terms of distressing debt situation include Sudan (146 percent), Zambia (107,5 percent), Cabo Verde (107,1 percent), Mozambique (97,5 percent) and Congo (94,7 percent).
According to the World Bank, a country’s debt-to-GDP ratio is an important measure of a country’s debt sustainability.
Countries with high debt-to-GDP ratios are perceived as riskier by foreign investors, resulting in higher interest rates on future loans. This escalates the cost of debt servicing, resulting in a vicious cycle of borrowing to repay previous debts.
In terms of the Pari Pasu rule for multilateral lenders, outstanding liability with one lender prevents a borrower from accessing fresh lending from all other multilateral lenders. This has blocked such new credit to Zimbabwe since the turn of the century.
Bilateral credit, while limited, has come at a significant cost to the country, inflating the country’s already difficult and unsustainable external payment obligations.
This, however, comes against the backdrop that the Government this week said it was happy with the progress the country has recorded in discussions with creditors on debt clearance and resolution.
The Government said, in a statement during a meeting with Sector Working Groups spearheading Government reforms under strategic pillars, which will help define the country’s debt clearance and resolution roadmap, the total sovereign debt stood at US$21 billion as of June 2024.
Targeted reforms under the debt resolution framework include economic growth and stability, governance and land tenure, compensation for former farm owners and resolution of bilateral investment protection and promotion (BIPPAs).
Achievement of the reform objectives, the statement from Zimbabwe’s Ministry of Finance, Economic Development and Investment Promotion stated, will ensure that the objectives of the debt resolution framework are achieved.
About US$12,3 billion of Zimbabwe’s sovereign debt is owed to external creditors while the balance is domestic.
In terms of external debt, US$3,1 billion is owed to multilateral lenders.
A total of US$681 million is owed to the African Development Bank, US$1,5 billion to the World Bank and US$427 million to the European Investment Bank.
Andrew Bvumbe, head of the Zimbabwe Public Debt Management Office, said at the meeting with creditors this week that the Southern African country was committed to the reform agenda under its debt resolution process.
“The process is a crucial step in enabling the Government to address the long-standing debt overhang challenge that remains a significant obstacle to the country’s development efforts,” he said.
Sub-Saharan Africa (SSA) external public and publicly guaranteed (PPG) debt has been on an upward trend within the last decade, according to the World Bank’s Africa Pulse report released in October.
The report notes that the debt in SSA has more than quadrupled since 2006.
PPG’s total external debt increased from US$108 billion in 2006 to US$462 billion in 2022.
In Sub-Saharan Africa, bilateral Paris Club creditors provided less external funding, while bilateral non-Paris Club creditors provided somewhat more.
Sub-Saharan Africa’s total debt service levels have increased steadily since 2006, the World Bank report says, adversely affecting fiscal space and increasing vulnerability to shocks, especially for countries that have gained access to the international bond market and other non-concessional financing sources.
“Total annual debt service increased by US$31 billion between 2006 and 2022.
“Additionally, the expiration of the Debt Service Suspension Initiative—which suspended and rescheduled debt service due during 2020–21—along with high global interest rates led to a large increase in debt service in 2023, amounting to US$51 billion, resulting in a total cumulative increase of US$82 billion.
“The highest increase was in AFE countries, where total debt service in 2006–22 increased by US$81 billion.
“The ratios of total debt service to exports and debt service to revenue in Sub-Saharan Africa are 32 and 49 percent, respectively, for 2023, and are estimated to adjust downward in 2024 to 22 and 34 percent, respectively,” the World Bank said.
Progress in debt restructuring
To restore debt sustainability and rebuild fiscal space, several countries in Sub-Saharan Africa, Zimbabwe included, are implementing comprehensive debt restructurings in the context of the Common
Framework and beyond
Chad, Ethiopia, Ghana and Zambia have applied for external debt treatments under the Common Framework. Restructuring agreements were reached with official bilateral creditors in all the countries except Ethiopia, where negotiations were delayed due to the country’s internal conflict.
Negotiations with official and private creditors continue, with a few countries reaching agreements.
Chad reached an agreement with all its main creditors in November 2022.
The Government of Zambia agreed on a state-contingent debt treatment with its official creditors in October 2023, and concluded a bond exchange in June 2024.
Bongani Ndlovu