ZIMBABWE needs a sustainable arrears clearance strategy which must be anchored on inclusive and sustainable growth, senior economist Prosper Chitambara has noted.
The country remains in debt distress with total public debt estimated at US$17,7 billion as at the end of September 2023, up 63,6% from end of December 2020.
The bilateral and multilateral debt amounted to US$9,1 billion, of which 76% are principal arrears, interest arrears and penalties.
Of the total public debt stock, external debt amounted to US$12,7 billion and domestic debt at US$5 billion.
Speaking at the Employers Confederation of Zimbabwe business indaba in Harare on Thursday, Chitambara said Zimbabwe’s debt situation remains an impediment to both external sustainability and economic development.
“The unsustainable stock of external debt has constrained access to concessional financing and to international markets, retarded economic growth, and hampered socio-economic development,” he said.
“Government has undertaken a number of initiatives in an attempt to address the debt problem with limited success. In 2010, a Sustainable and Holistic Debt Strategy was developed.
“In 2012, the government formulated the Zimbabwe Accelerated Arrears Clearance Debt and Development Strategy.”
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In 2015, Harare pursued the Lima Strategy, which was premised on a non-heavily indebted poor countries debt resolution strategy designed to clear debt arrears amounting to US$1,8 billion owed to the International Monetary Fund (IMF), the World Bank and African Development Bank (AfDB).
Zimbabwe cleared its overdue obligation to the IMF in October 2016, according to Chitambara.
Despite the settling of the IMF obligation, Chitambara said the country cannot contract new debt from the international financial institutions and other creditors until it clears all the arrears it owes other creditors.
However, the government, with support from AfDB, has established a High-level Structured Dialogue Platform (HSDP) and sector working groups for dialogue with creditors and development partners.
The HSDP includes all creditors and development partners, and has been established to institutionalise structured dialogue on economic and governance reforms to underpin the arrears clearance and debt resolution process.
“Borrowing in and of itself is not bad. It becomes bad when it is unsustainable (government cannot service its debt or the debt is crowding out key development expenditures) or the loan is not used for development purposes,” he noted.
“However, higher levels of borrowing can also be a symptom of a wider and deeper systemic crisis reflecting political and economic instability especially if the debt was contracted to finance recurrent expenditure as is the case in Zimbabwe.
“Key institutions remain weak and in need of reform. In particular, State-owned enterprises and parastatals are facing financial difficulties with mounting losses and negative equity, which raise fiscal risks.”
The sector accumulated losses of about 5% of gross domestic product between 2011 and 2018.
A number of HSDP meetings have been held during which consensus or agreement has been reached on key reform activities and an action plan for their implementation.
“A sustainable arrears clearance strategy must be anchored on inclusive and sustainable growth, improvements in productivity and competitiveness, as well as structural transformation of the economy,” he said.
Moreover, he further indicated that a stable political environment was very important as past experience has shown that faster real economic growth has significantly contributed to reducing public debt burdens in a number of advanced economies.
In his outlook for the year, the economist noted that maintaining price stability was critical and would largely depend on the ability to control money supply growth and public spending.
However, he said, given the huge pressures on the expenditure side and the limited fiscal space, there was a possibility that government may be forced to seek recourse to monetary financing and domestic borrowings.
