Recently, the World Bank announced that due to the impacts of Coronavirus Disease 2019 (COVID-19), poor countries including Zimbabwe have been pushed to new debt levels.
David Malpass, the bank’s president, warned the virus had widened the gap between rich and poor nations, setting back progress by years and, in the case of some countries, by a decade. Announcing new World Bank figures showing that the debt burden of more than 70 low-income nations had increased by a record 12% to $860bn (£630bn) in 2020, Malpass called for a comprehensive plan to ease the debt pressures and for rich countries to make vaccines available to the less well-off.
With income per head expected to rise by an average of 5% in developed countries this year compared with 0.5% in developing countries, Malpass said the problem of inequality was getting worse. Malpass said: “We need a comprehensive approach to the debt problem, including debt reduction, swifter restructuring and improved transparency. Sustainable debt levels are vital for economic recovery and poverty reduction.”
According to the 2020 Annual Public Debt Bulletin by the Ministry of Finance and Economic Development, Zimbabwe’s total Public and Publicly Guaranteed (PPG) (external and domestic) debt are estimated at US$10.7 billion as at end of December 2020. This represents 72.6 percent of GDP although IMF Estimates the PPG government debt to be 88.9 percent of GDP for 2020.
For Zimbabwe, debt has remained a key economic albatross which can be traced back to the year 2000 when the country first defaulted on its external obligations to the International Financial Institutions (IFIs). A combination of high debt service obligations, fiscal deficits, erratic economic growth, and constrained access to new external financing in the 1990s culminated in a net outflow of resources from the country, with the consequence of default by 2000.
The outbreak of the COVID-19 led to the economy declining by an estimated 4.1 percent in 2021, while the IMF, estimates the economy to have weakened by -8.0 percent. Following the COVID-19 pandemic, borrowing to support the associated health expenditure and to mitigate economic vulnerabilities became inevitable.
In the context of Zimbabwe, the COVID-19 pandemic has exacerbated the public debt situation in the country. With limited fiscal space and recourse to external financing, Zimbabwe has resorted to internal borrowing to complement resources that were brought in by Development Partners and other bilateral donors to help mitigate the effects of the pandemic.
Although Government has improved on debt transparency with the publication of the 2019 and 2020 Public Debt Bulletins, Zimbabwe’s adherence to the African Borrowing Charter principles is mixed. The bulletins exclude information on the cost and risk indicators of the current country’s debt portfolio and lack an analysis of loan guarantees. Furthermore, the recommendations on debt management proffered by 2019 and 2020 reports have not been fully implemented.
To get out of this situation, Zimbabwe needs a clear path to a comprehensive restructuring of its external debt, including the clearance of arrears and obtaining financing assurances from official creditors; a reform plan that is consistent with macroeconomic stability, growth, and poverty reduction; a reinforcement of the social safety net; and governance and transparency reforms.
To buttress transparency and accountability, the Parliament of Zimbabwe must commit to undertaking, in partnership with CSOs, a comprehensive citizens’ audit of the Zimbabwean debt to expose the culpability of all the actors in loan and debt contraction and ascertain what constitutes illegitimate or odious debt.
Additionally, the country needs a sustainable arrears clearance strategy that must be anchored on inclusive and sustainable growth, improvements in productivity and competitiveness, as well as the structural transformation of the economy. Moreover, a stable political environment is very important.
