The Parliament Budget Office (PBO) expects Zimbabwe’s sovereign debt to grow by 8,69% to a record high of $20 billion by year-end, stoked by continuous public borrowings to finance persistent budget deficits through Treasury Bills (TBs) and central bank overdrafts.

Based on figures from the Reserve Bank of Zimbabwe (RBZ) and National Budget, local fact-checking firm, Zimfact, estimated Zimbabwe’s public and private, foreign and domestic debt at $18,4 billion by the end of 2017.

In a review report titled Ballooning budget deficits, a threat to macroeconomic stability released last week, the PBO pointed out that sovereign debt was primarily driven by government’s deficit financing activities, which have seen an expanded issuance of TBs, coupled with unfunded electronic transfers under Treasury’s overdraft facility with the RBZ.

By June 30, 2018, the overdraft at the RBZ had reached $961,29 million, while government securities, comprising TBs and bonds, amounted to $2,53 billion.

At the end of the same period, budget deficit had ballooned to $1,34 billion, 406% above the $266 million deficit target and way above the statutory limit.

“This is against the provisions of Section 11(1) of the Reserve Bank Act [Chapter 22:15], which requires that Reserve Bank lending to the State at any time shall not exceed 20% of the previous year’s government revenues. In 2018, for example, borrowing should not exceed $774 million, which is 20% of the 2017 revenue of $3,870 billion.”

The PBO warned that government domestic debt would continue to increase in the second quarter due to the continued issuance of TBs, leading to a debt overhang.

“The unsustainable budget deficits in Zimbabwe are being financed through the issuance of Treasury Bills and recourse to the overdraft with the Reserve Bank. According to Zimfact, Zimbabwe’s national debt stood at $18,4 billion as of April 2018, which is 95% of the estimated GDP [gross domestic product] for 2018,” the PBO said.

“The 2018 budget disclosed that foreign debt stood at $7,5 billion as of December 2017 and was expected to increase to $7,8 billion in 2018 due to interest and penalties.
However, this figure, according to Zimfact, excludes private sector foreign debt which is estimated at $2,5 billion, bringing the country’s foreign debt to a minimum of $10 billion,” the PBO report noted.

“The 2018 Monetary Policy Statement disclosed a $1,5 billion borrowing from Africa Import and Export Bank (Afreximbank), thus taking the country’s foreign debt stock to $11,5 billion. Domestic debt on the other hand has been on an increase from $4 billion in 2016 to $6 billion by end of 2017. This figure is expected to increase by not less than $2,5 billion in 2018 due to increased deficit financing through issuance of Treasury Bills and a growing government overdraft at the RBZ that has crossed the $1 billion mark.”

When all the figures have been collated, sovereign debt would peak at $20 billion by yearend.

This expected national debt would be 8,85% above the Zimbabwe’s nominal GDP, which is estimated by World Bank GDP to reach $18,37 billion by year-end, based on geometric growth projections.

The PBO noted with concern that Zimbabwe’s budget was constantly in the red, a phenomenon which creates debt problems.

For instance, the 2018 budget deficit is expected to reach $3 billion, 346% above the initial target of $672 million.

Recent budget deficits are attributed to high and rising employment costs.

Civil service wage costs have further gone up following a 17,5% increment awarded with from effect July 1, 2018. The figure includes capital transfers.

Since the country dollarised in 2009, public expenditures have remained skewed towards recurrent spending.

Between 2011 and 2016, recurrent expenditure constituted more than 90% of total public spending.

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