ZIMBABWE’S $1,86 trillion debt has breached thresholds prescribed under the low-income country (LIC) Debt Sustainability framework, exposing the country to refinancing risks, the Public Debt Management Office has indicated.
The $1,86 trillion translated to about US$17,5 billion at the end of last year, with US$6,6 billion in arrears.
In the Annual Debt Bulletin 2021 Financial Year report released two weeks ago, the office said total public debt to gross domestic product (GDP) ratio, estimated at 50,9% during the period, was way above the recommended 35%.
It said arrears posed the biggest threat to Zimbabwe’s capacity to refinance the debt.
“As at end December 2021, the nominal total debt to GDP ratio (was) estimated at 62,1%, which is within the legislative limit of 70%, provided for in Section 11 of the Public Debt Management Act,” the report said.
“However, the present value of total public debt to GDP ratio is estimated at 50,9%, against a threshold of 35% prescribed under the Low-Income Country (LIC) DSA Framework. The cost and risk indicators for external debt are being adversely affected by the continuous accumulation of external debt arrears,” the report further noted.
“The weighted average interest rate of 0,2% is relatively favourable, whereas the Average Time to Maturity of 3,9 years and average time to refixing of 3,9 years, are relatively low reflecting arrears which are due and payable on demand, hence significant exposure to refinancing risk.
“This is also reflected by external debt maturing in one year as a percentage of total debt at 31,8% and external debt refixing in one year as a percent of total debt of 46,6%. This points to arrears pausing a heightened refinancing risk for the debt portfolio.
“The portfolio is vulnerable to foreign exchange rate risk as indicated by external debt being 78% of total debt, as well as a short-term external debt to international reserves of 681,8 percent.”
It said this implied that any movements in exchange rates would “heavily impact” the portfolio and would raise the cost of debt service.
The report said Zimbabwe’s debt-stricken administration last year struggled to access fresh loans to scale up ambitious plans to revamp key infrastructure projects after accumulating significant arrears on lifelines from one of China’s biggest lenders.
The report noted that arrears to China Eximbank mounted during the period frustrating efforts for fresh disbursements, even as Harare honoured a pledge to send out token payments to several global lenders including the Paris Club. China Eximbank has been one of the most active big lenders on the domestic market, where it has bankrolled crucial public infrastructure projects including airports and power stations. Newsday