Zimbabwe in costly debt penalties
Zimbabwe is paying a whopping 6,3 percent interest penalty on its external debt, a situation that has exacerbated the country’s debt overhang.
According to latest figures from the Treasury, the accumulation of external debt payment arrears since 2000, has resulted in the attraction of penalties on Zimbabwe’s public and publicly guaranteed external debt.
While the average interest rates on debts are at 4,16 percent for multilateral creditors and 4,4 percent for bilateral creditors the average penalty interest rate for multilateral creditors is 6,6 percent, while for bilateral creditors it is at 6,2 percent.
The highest penalty rate for bilateral creditors is 12.2 percent, from the French COFACE, while the highest penalty rate for multilateral creditors is 10,5 percent from the European Investment Bank (EIB).
“It is clear that the penalties have exacerbated Zimbabwe’s external debt overhang position due to prohibitive penalty rates, hence the need to urgently resolve the country’s external debt distress situation,” said Treasury.
Overall total stock of PPG 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$9,1 billion, debt denominated in euro constitutes 31 percent.
The appreciation of the US$ 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 PPG external debt resulted from disbursements, including on the US$400 million from Afreximbank.
On 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 account 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 USA. Non-Paris Club loans, including loans from China were contracted after year 2000, while Paris Club loans were contracted before year 2000, when the country started to accumulate external debt payment arrears on the debt.-ebusinessweekly
