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Business Reporter

Zimbabwe’s national budget deficit is expected to remain below 3 percent of the gross domestic product (GDP) until 2025 with the shortfall to be largely funded using domestic resources, according to the Treasury’s Mid-Term Debt Strategy paper.

The Southern African nation, which cannot access external funding because of huge debts, intends to raise 90 percent of the funding through the issuance of medium- to long-term debt securities as well as bonds on the Victoria Falls Securities Exchange, the paper says.

Treasury says the balance will come from external debt sources, such as the OPEC Fund for International Development and sovereign bonds.

“Debt distress and the accumulation of external debt arrears has worsened the country’s inability to access funding from external traditional sources and the international financial and capital markets,” read part of the mid-term debt strategy paper.

In his mid-term budget statement, Finance and Economic Development Minister Professor Mthuli Ncube said the country’s external debt continues to burden the economy by limiting access to low-cost, long-term financing required to support the desired medium long-term growth trajectory. 

He said the Government had developed the Arrears Clearance, Debt Relief and Restructuring (ACDRR) strategy to restore debt sustainability.

Preliminary public and publicly guaranteed external debt stock as of June, 30 2022 amounted to US$13,2 billion, with US$5,5 billion being owed to bilateral creditors, US$2,6 billion to multilateral creditors and US$4,9 billion is RBZ external debt, including blocked funds. Through the Finance Act of 2021, the Government assumed outstanding external obligations that could not be remitted due to a shortage of foreign currency (blocked funds) amounting to US$3,5 billion.

The settlement of the debt will be through cash payments for claims below US$1 million, over a period of five years and the issuance of zero-coupon Treasury bonds with maturities of 3 to 20 years for claims above the US$1 million threshold.

During the first half of 2022, the Government issued Treasury bills amounting to $20,6 billion, against a target of $41,5 billion, through the auction system and private placements, with maturities ranging from 90 days to 2 years and interest rates of between 26 percent to 90 percent per annum. Maturing Treasury bills amounting to $19,1 billion were also paid during the same period, Minister Ncube said.

As a result, domestic debt as of June 30, 2022, stood at $1,3 trillion, composed of 97,6 percent for compensation of former farm owners, 1 percent for both Treasury bills and bonds, and 0,3 percent for domestic arrears. 

The International Monetary Fund’s debt sustainability analysis on Zimbabwe said the southern African nation is in debt distress, with unsustainable public and publicly guaranteed external and total debt and large external arrears, Bloomberg reported.