Toxic debt terrifies authorities..…Zim ratios below global benchmarks, penalties mount 

Source: Toxic debt terrifies authorities..…Zim ratios below global benchmarks, penalties mount –Newsday Zimbabwe

Mthuli Ncube

UNSUSTAINABLE debt to gross domestic product (GDP) ratios have shaken finance authorities, who indicated in a new report that Zimbabwe could be sitting on a ticking time bomb.

The concerns, a rare frank assessment of Zimbabwe’s hemorrhaging economy by a State agency, are contained in the Medium Term Debt Management Strategy (MTDS), obtained by NewsDay Business last week.

The Zimbabwe Public Debt Management Office said while the country’s ratios fell within internal benchmarks, they were way below key international benchmarks.

Zimbabwe’s total debt was estimated at about US$17,2 billion during the year ended December 31, 2021, representing over half of the country’s GDP.

According to the debt office, US$13,4 billion of this was external debt, while US$3,8 billion related to commitments owed to domestic creditors.

The report said nominal total public and publicly-guaranteed (PPG) external and domestic debt to GDP ratio was estimated at 56,9% during the review period.

This figure was within Public Debt Management Act limits of 70%.

“However, the present value of total debt to GDP ratio is estimated at 50,9%, against a threshold of 30% of present value of debt to GDP ratio, prescribed under the Low-Income Country DSA Framework, which Zimbabwe is classified under,” the report added.

“The cost and risk indicators for external debt are being adversely affected by the continuous accumulation of external debt arrears and penalties. The average time to maturity (3,9 years) and average time to refixing (3,9 years), are relatively low, reflecting external debt arrears which are due and payable immediately, hence exposure of the debt portfolio to the refinancing risk,” the report added.

“This is also reflected by external debt maturing in one year as a percentage of total debt (31,8%) and debt refixing in one year as a percentage of total debt of 46,6%. This points to heightened refinancing risk for the debt portfolio due to the external debt arrears and penalties. However, the weighted average interest rate (0,2%) is relatively favourable.”

It warns of deadly blowbacks in Harare’s appetite for United States dollar and Euro debts, saying the country has placed itself on an untenable position.

In the event of turbulences to the two currencies, the country could find itself swamped by high debts, said the debt management office in a new report that also warns about dangers posed by “debt distress”.

 “The PPG (public and publicly guaranteed) external debt portfolio is dominated by debt contracted in USD, which accounts for 46% of the total PPG external debt, followed by EUR at 31%,” the debt office said.

“The Chinese Yuan and the Japanese Yen accounts for 8% and 7%, respectively. The dominance of the US dollar and EUR implies that any adverse fluctuations of these two currencies will elevate the country’s debt and related risks,” said the debt office.

“Zimbabwe remains in debt distress due to the accumulation of external debt arrears. The country has been unable to meet its debt servicing obligations and has, therefore, been accumulating external debt arrears and penalties, which are estimated at US$6,6 billion, including penalties of US$2,01 billion, as at end December 2021. Of the total external debt arrears, US$4,2 billion (63%) is due to bilateral creditors, while US$2,4 billion (37%) is due to the multilateral creditors,” it added.

Zimbabwe’s total debt was estimated at US$17,2 billion at the end of last year, representing over half of the country’s gross domestic product estimated at about US$30 billion.