Zimbabwe needs a donor to secure debt relief

Zimbabwe requires a lead bilateral donor to secure bridge financing for debt relief, according to the African Development Bank (AfDB).

This would form part of a comprehensive roadmap with clear benchmarks and targets.

Zimbabwe’s debt surged by 54,7 percent in nominal terms during 2023, reaching a staggering 96,7 percent of gross domestic product (GDP) of US$21,2 billion from 62,1 percent of GDP (US$13,7 billion) in 2021.

The significant increase was primarily driven by domestic debt.

Mthuli said the rapid growth was mainly on account of Government takeover of legacy debts, the Reserve Bank of Zimbabwe’s external liabilities, capitalisation of the Mutapa Investment Fund and the compensation of white former farm owners.

Domestic debt climbed from US$5,2 billion in 2022 to US$8,1 billion in 2023, fuelled by US$2,84 billion in Treasury bond issuance, including US$924 million to clear legacy RBZ debts and US$1,92 billion to capitalise the Mutapa Investment Fund.

In its Country Focus Report released last week, the AfDB said the debt relief experiences of Somalia, Sudan and Myanmar underscored the necessity of a champion donor to advocate for the country at the Paris Club and multilateral institutions, while also providing bridge financing to clear arrears.

Additionally, these cases emphasise the importance of open dialogue, clear targets and addressing political conditions linked to debt relief.

Multilateral Development Banks (MDBs) and Development Finance Institutions (DFIs) should provide Zimbabwe with less risky financing, prioritising green growth sectors.

This would in turn help unlock further private sector financing.

“Currently Zimbabwe does not have access to concessional and long-term financing, which creates another obstacle to delivering on its goals,” said the AfDB. “In addition, short-term financing is very expensive.”

To strengthen its domestic resource base for economic development and transformation, Zimbabwe should enhance tax administration through digital technology, combat illicit financial flows and reform tax policies.

Globally, the G20’s Common Framework and Heavily Indebted Poor Countries initiatives require reform. These debt resolution mechanisms are slow and complex, hindering efficient debt restructuring.

To address Zimbabwe’s debt challenges, these processes must be streamlined. The G20 could propose legislation to accelerate debt resolution, including provisions for private creditor participation.

The AfDB has been instrumental in facilitating dialogue between Zimbabwe and its creditors, fostering a platform for constructive engagement.

Under the leadership of AfDB President Dr Akinwumi Adesina, who was appointed as a champion for Zimbabwe’s arrears clearance and debt resolution by President Mnangagwa in 2022, the bank has been actively involved in structuring a comprehensive debt resolution strategy.

The AfDB warned Zimbabwe’s unsustainable debt burden posed a significant obstacle to the successful implementation of the country’s National Development Strategy 1 (NDS1)

To curb inflation risks, AfDB said Zimbabwe must reduce its reliance on domestic borrowing.-ebsinessweekl