Treasuries, targets, and trade-offs — strategy for 2025 debt management

The Zimbabwean Government’s 2025 borrowing plan underscores a strategic approach to managing its fiscal needs amid challenging economic conditions.

With a gross financing requirement of ZiG25,22 billion, the plan seeks to balance immediate financial demands and long-term economic sustainability.

This financing includes debt amortization and support for new initiatives, with funding sourced both domestically and internationally.

In the first quarter of 2025, the Government plans to raise ZiG946 million in Treasury bills.

The pace intensifies in subsequent quarters, with ZiG2,24 billion in the second quarter, ZiG2,83 billion in the third quarter, and ZiG3,31 billion in the final quarter.

Notably, the issuance of US$ Treasury bills (denominated in ZiG) begins in the second quarter, targeting ZiG1,08 billion and repeating this target in the final quarter, making the total US dollar issuance ZiG2,16 billion for the year.

These targets reflect an emphasis on scaling up domestic borrowing while selectively engaging in dollar-denominated obligations.

Additionally, the borrowing strategy includes external loan disbursements. Existing external loans are expected to yield US$30,4 million, while new non-concessional external loans under negotiation aim to bring in US$350 million.

In total, the Government plans for external loan disbursements of ZiG13,7 billion, reflecting a pivot toward leveraging foreign capital for critical developmental needs.

Economist Gladys Shumbambiri-Mutsopotsi remarked on the implications of these borrowing strategies.

“The plan demonstrates the Government’s resolve to manage fiscal pressures without compromising key economic objectives.

“However, the reliance on short-term domestic borrowing raises questions about rollover risks and the impact on the domestic credit market,” she said.

She highlighted the careful balance required to ensure borrowing does not exacerbate inflation or crowd out private sector credit.

Dr Prosper Chitambara weighed in on the broader implications, emphasising the criticality of restructuring existing debt.

“Debt restructuring is vital for fiscal sustainability.

“By extending maturities and negotiating better terms, the Government can mitigate repayment pressures in 2025 while creating fiscal room for other priorities,” he stated.

He also pointed out that relying heavily on short-term instruments might strain domestic liquidity and challenge monetary policy objectives.

A key concern is the burden of debt service, which is projected to reach ZiG30,06 billion for domestic obligations and US$416,2 million for external debts in 2025.

This comprises principal repayments and interest, with domestic payments predominantly covering the former.

The annual borrowing limit, set at 5,75 percent of GDP, includes allocations for central Government operations (3 percent), state-owned enterprises (2 percent), and local authorities (0.25 percent).

These ceilings aim to maintain fiscal discipline while enabling targeted investments.

The Government’s approach to managing debt repayment was explained by financial analyst Tafara Mtutu, who noted two potential strategies.

He dismissed the likelihood of a currency devaluation to ease debt burdens, pointing to the risk of exchange rate depreciation and inflationary pressures.

Instead, he forecasted a preference for extending debt maturities through rollovers.

“As those instruments come due, the Government will likely issue new ones, perhaps staggering maturities across one, two, or three years,” he explained.

He added that this strategy could stabilise inflation and exchange rates, particularly if USD-denominated debts are involved, as falling global interest rates could reduce the overall interest burden.

However, Mtutu cautioned that while this approach offers immediate relief, it comes with trade-offs.

For ZiG-denominated instruments, higher domestic interest rates could elevate costs.

Conversely, for USD-denominated instruments, there is potential for lower interest expenses if global trends hold.

The strategy of rolling over debt could also delay addressing structural imbalances, perpetuating reliance on the capital markets.

The borrowing framework for 2025 also highlights the diversity of instruments and funding sources.

Short-term domestic Treasury bills dominate the borrowing plan, with maturities ranging from 180 to 365 days.

While this ensures liquidity for immediate needs, the concentration of repayments in a short timeframe poses rollover risks.

To mitigate this, the Government has sought to diversify its funding base by including external disbursements. Still, these measures will require robust implementation to avoid exacerbating the debt burden.

As the Government prepares to navigate its borrowing strategy, the focus on fiscal sustainability is evident.

By aligning borrowing with economic priorities and carefully managing repayment obligations, Zimbabwe aims to stabilize its macroeconomic environment while meeting developmental needs.

Yet, the success of this plan will depend on effective execution, prudent fiscal management, and external factors such as global interest rate trends and commodity prices.

The restructuring of US$177 million in Treasury bonds due in the last quarter of 2024, followed by another US$738 million in 2025, marks a critical juncture.

This restructuring underscores the Government’s acknowledgment of the fiscal pressures ahead and its intent to prioritise sustainable debt management. As highlighted in official documents, the restructuring is essential for maintaining public service delivery and fostering economic growth without compromising debt obligations.

The 2025 borrowing plan reflects a delicate balancing act, addressing fiscal deficits, supporting public investments, and ensuring debt sustainability.

Comments from economists and analysts converge on the need for careful calibration, acknowledging both the opportunities and risks inherent in the plan. While domestic borrowing offers immediacy and control, its short-term nature demands cautious monitoring.

On the other hand, external borrowing provides a longer horizon but comes with exposure to currency and interest rate fluctuations.

As the year unfolds, the effectiveness of these strategies will be closely watched. Success hinges not only on achieving borrowing targets but also on fostering economic growth to ensure that the borrowed funds translate into tangible benefits for the economy.-ebsinessweekl