A SIGNIFICANT debt overhang distressing Zimbabwe could jeopardise the National Development Strategy (NDS)-1 projections, according to a new report by the African Development Bank (AfDB).
The report, titled Driving Zimbabwe’s Transformation: The Reform of the Global Financial Architecture, highlighted the country's public debt, which surged by 54,7% from US$13,7 billion in 2021 to US$21,2 billion in 2023.
This increase followed the government's agreement to pay former white commercial farmers US$3,5 billion under the Global Compensation Deed (GCD). The land reforms, initiated in 2000, aimed to address colonial-era inequalities.
However, the AfDB noted that the debt's exponential rise was also driven by the government assuming the Reserve Bank of Zimbabwe's (RBZ) liabilities in 2015, 2021, and 2023, amounting to US$3,7 billion.
The pan-African lender, currently spearheading efforts to devise a viable debt clearance plan for Zimbabwe, expressed doubts about the country's ability to achieve NDS-1 targets due to the mounting debt.
The debt has been accumulating since 1999 when Zimbabwe began defaulting on its obligations to domestic and foreign lenders.
“Zimbabwe’s debt position remains unsustainable and is a major obstacle to the successful implementation of the country’s National Development Strategy 1 (NDS-1),” the bank said.
NDS-1, which runs from 2021 to 2025, will be succeeded by NDS-2. The current blueprint projects a positive economic outlook in line with the government’s plan to transform Zimbabwe into an upper- middle-income economy by 2030.
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However, the AfDB found that the government's inability to clear its debt has led to the country requiring US$3,7 billion in annual financing to achieve this goal by 2030, and US$5 billion per annum to fast-track growth.
“Arrears on principal, arrears on interest and penalties account for 78% of multilateral and bilateral debt of US$9,4 billion,” AfDB said.
“Paris Club debt amounts to US$4,1 billion, while non-Paris Club debt amounts to US$2,1 billion.
“The five biggest Paris Club creditors are Germany, France, the United Kingdom, Japan and the United States, with a combined debt stock of US$3,1 billion, accounting for 76% of the total Paris Club external debt.
“Recognising Zimbabwe’s current situation on re-engagement, it is recommended that a more reasonable target and combination of financing options be pursued to allow for a gradual but steady structural transformation process over a longer period, to ensure the mobilisation of both domestic and/or external resources without jeopardising or worsening the country’s already unsustainable debt position,” it added.
AfDB said this meant that the target of achieving upper-middle-income by 2030 would be too ambitious.
“The AfDB estimates that Zimbabwe has a financing need of US$5 billion annually to fast-track structural transformation by 2030,” it further stated.
“When the target is extended to the Agenda 2063 deadline, the annual financing gap falls significantly to US$0,65 billion annually and would be more realistic.”
AfDB said Zimbabwe now needed to identify a lead bilateral donor to mobilise bridge financing for debt relief.
“The debt relief experiences of Somalia, Sudan, and Myanmar highlight the importance of identifying champion donor/s that would push the agenda at the Paris Club and in the boards of multilateral institutions and provide bridge financing for arrears clearance to multilateral creditors,” it said.
“All cases also point to the importance of dialogue and establishing a process with well-defined targets, as well as addressing the political conditions attached to debt relief.
“MDBs (multilateral development banks) and DFIs (development financial institutions) should, therefore, offer less risk-averse finance to Zimbabwe and direct this finance to all sectors that are most important for green growth. This in turn will help unlock further private sector financing.”
AfDB said Zimbabwe did not have access to concessional and long-term financing, owing to debts, which created another obstacle to delivering on its goals.
“In addition, short-term financing is very expensive. Zimbabwe should enhance its domestic revenue base to increase available resources needed for economic development and structural transformation,” it said.
“This can be done by strengthening tax administrations, especially by expanding the use of digital technology, combating illicit financial flows and reforming tax policies to enhance domestic resource mobilisation.”
The AfDB suggested that Zimbabwe leverage its informal sector, natural resources, the African Continental Free Trade Agreement, and adopt bold private sector-driven policies and programmes to achieve economic transformation.
