Zim braces for a $4,2 trillion debt repayment

Zimbabwe braces for a total debt service of $4,2 trillion this year mainly for maturing Treasury Bills and bonds, according to Treasury’s latest Public Debt Report.

The bulk of the debt service — $3,3 trillion — is earmarked for domestic debt, specifically maturing Treasury Bills and bonds, with $2,5 trillion of this amount due solely in principal repayments, while the remaining $814 billion covers interest payments.

Last year Government added more date and between January and September 2023, Government, through the issuance of Treasury Bills, mobilised resources amounting to $305,9 billion, against a revised borrowing plan target of $276,3 billion.

The target was surpassed during the first half of 2023, as the Government made deliberate efforts to mop up excess liquidity in the market, to curtail the growth in money supply and hence the rate of inflation, as well as for budgetary cashflow smoothening.

The issuances were done through private placement, with 90-day and 180-day having an average coupon rate of 81 and 82 percent respectively, while 270-day and 365-day had average coupon rates of 83 percent and 88 percent, respectively.

Ninety-nine percent of these resources were raised from the banking sector, with the remainder coming from the non-banking sector.

However, the issuance of treasury bonds on the Victoria Falls Stock Exchange (VFEX) was not successful due to the limited appetite by potential international subscribers and the high cost of the Afreximbank bond guarantee fee (30 percent of the face value of the bond).

At the time of the report, external loan payments for 2024 were projected at $868,7 billion.

However, this figure could potentially double due to the ongoing depreciation of the Zimbabwean dollar against the US dollar.

The depreciation would effectively increase the local currency value of the foreign debt obligation, placing an even greater strain on the National Budget.

The payments of external debt are intended to unlock disbursements for ongoing projects and programmes, while token payments will continue to be made to international financial institutions (IFIs) and Paris Club creditors.

The approach, some analysts say aims to maintain engagement and facilitate potential future debt restructuring.

In nine months to September last year, the Government, made external debt service payments amounting to US$55,6 million for the active portfolio, legacy debts and token payments.

To support and trigger disbursements for ongoing projects and programmes, the Government also made payments to active portfolio creditors amounting to US$26,4 million over the same period.

In addition, as a sign of commitment to the country’s international engagement and reengagement thrust, Government made token payments to all International Financial Institutions and Paris Club creditors amounting to US$10,7 million over the same period.

The overall total stock of the external debt decreased from US$12,8 billion in December 2022, to US$12,7 billion in September 2023.

This was mainly due to the decrease in liabilities on the RBZ balance sheet by US$684,8 million. Out of the total bilateral and multilateral PPG external debt amounting to US$9,1 billion, debt denominated in EURO (EUR) constitutes 31 percent.

The appreciation of the US$ against the EUR (from December 2022 to September 2023), reduced the bilateral and multilateral external debt component by US$37,9 million. This reduction was however, offset by an increase in penalties of US$227,6 million during the same period.

An additional increase in total external debt resulted from disbursements, including on the US$400 million from Afreximbank.

Of the bilateral and multilateral debt amounting to US$9,1 billion, US$7 billion or 76 percent are principal arrears, interest arrears and penalties.

Bilateral external debt comprising of Paris and Non-Paris Club creditors amounted to US$6 billion, with principal arrears, interest arrears and penalties amounting to US$4,4 billion or 74 percent.

The five biggest Paris Club creditors are Germany, France, United Kingdom, Japan and the US, with a combined external debt stock amounting to US$2,9 billion, accounting for 74 percent of the total Paris Club external debt.

Within the Paris Club external debt portfolio, penalties for these five biggest creditors accounts for 75 percent (US$1,5 billion) of total Paris-Club penalties.

China is the biggest Non-Paris Club creditor accounting for 95 percent of the total Non-Paris Club external debt of US$2 billion.

China’s stock of total external debt at US$2 billion, is lower than Zimbabwe’s total external debt owed to the five biggest Paris Club creditors, namely, Germany, France, United Kingdom, Japan and the US.

Non-Paris Club loans, including loans from China were contracted after year 2000, while Paris Club loans were contracted prior to year 2000, when the country started to accumulate external debt payment arrears on its debt.

The 2024 budget deficit is expected to be $4,3 trillion, and the gap will be financed from issuance of Treasury Bills and bonds amounting to $5,8 trillion from the market, using both private placements and the auction system.-herald