How RTGS relieved Zim of onerous debt burden

Government was the biggest winner when it took the decision to switch from a multi-currency to domestic unit as this saw its debt plunge from US$9,5 billion in 2018 to just US$530 million in real terms.

On February 22, 2019, the Government issued Statutory Instrument 33 of 2019, which required conversion of all US dollar balances to local currency at US$1 to $2,5, abolishing parity between RTGS and US dollar.

Further, all debts and liabilities contracted before that debt were to be settled in the reintroduced local currency, which was subsequently floated on the interbank foreign currency market.

This resulted in massive fall in Zimbabwe’s total debt obligations given its external public and publicly guaranteed (PPG) debt also stood at a humongous US$8,09 billion, 84 percent of GDP at the time.

Some private sector entities, who were owed US dollars for service or products rendered during the dollarisation era, demanded settlement of debts in the currency of transaction, but lost the cases at the courts of law.

Prior to the conversion, Zimbabwe’s total external debt position stood at US$17,5 billion, a suffocating debt position that has seen the country, amid an economic crisis, fail to service its obligations.

This has resulted in the country failing to get fresh lines of concessional funding from both bilateral and multilateral lenders, further derailing efforts to turnaround the struggling domestic economy.

The Southern African country has seen gradual increase in debt since 2012 and a sharp spike in the debt issuances and subsequent increase in the debt stock balances from 2018-2019 is on account of the monetisation of the budget deficit.

External debt arrears account for 74 per cent (US$5,97 billion) of the total external public and publicly guaranteed debt (PPD).

This represents a 2 percent increase from Zimbabwe’s 2018 total external (PPD) of US$7,94 billion, excluding the RBZ and private sector external debt.

Zimbabwe’s debt indicators show the vulnerability of the public debt portfolio, with total PPD GDP ratio remaining above the stipulated level of 70 percent in the Public Debt Management Act.

An update on the debt profile released by the Ministry of Finance and Economic Development recently shows that Zimbabwe’s nominal debt stood at $36,9 billion in 2018 and $161,9 billion 12 months later. Treasury used an exchange rate of 16,77 per US dollar when converting values from the domestic currency to US dollars, the anchor unit of accounting prior to reintroduction of the local currency in 2019.

The Zimbabwe dollar is now a managed float currency on the foreign currency auction introduced in June this year after nearly a decade of hiatus after it had been scrapped amid hyperinflation.

Following the currency switch, all domestic debts were converted to local currency and public debt, as at end December 2019, domestic debt, including Zamco’s $1,1 billion debt, stood at $8,88 billion or 5 percent of GDP).

According to the profile of Zimbabwe’s public and publicly guaranteed debt, the debt position as at December 2019 represented a 6,2 percent decrease from the 2018 domestic debt amount of $9,5 billion.

“The amount of total domestic debt, in real terms, decreased from US$9,5 billion in 2018, to US$530 million in 2019 due to the revaluation of domestic debt brought about by the introduction of the local currency,” the report says.

Government is making payments to bilateral and multilateral creditors with active portfolios to unlock new financing and in fulfilment of conditions for continued disbursements of loans and grants. It has been making quarterly token payments to the three IFIs namely World Bank African Development Bank and European Investment Bank as a sign of its commitment to the re-engagement process.-ebusinessweeklyc.o.zw