The Zimbabwe Debt Crisis

Zimbabwe has a debt problem, and its current economic fall is worsening it. Since its independence in 1980, Zimbabwe has struggled to manage its debt effectively. Zimfact, an organization that factchecks Zimbabwean issues, but the total figure owed by the government was at $18.4 billion at the end of 2017. 70% of that debt is due to arrears and penalties for late payment.

Legacy debt

The Zimbabwean government has never been transparent about how much it owes and to whom. Most figures are gathered from the government itself, the institutions it owes, and third parties.

From its inception, Zimbabwe had to assume the debt incurred by the former Rhodesian government. The new nation had to try to get a start on radical transformation programs that required significant resources and pay off the debt that it was not responsible for. This odious debt was calculated at $700 million.

During its collapse in the 2000s, the Reserve Bank of Zimbabwe (RBZ) took quasi-fiscal measures. It borrowed money from local and international institutions to fund economic and social programs. It was criticized for operating beyond its mandate, but the RBZ continued. The loans were never really paid back by those who benefited from them even after the amounts loaned were decimated by inflation. Nonetheless, the money borrowed by the RBZ still had to be paid back to its lender. The government controversially decided to assume the RBZ's USD 1.3 billion debt in 2015, although the government didn't reveal who had benefited from this. It is believed there was a lot of maladministration and corruption by the nation's leaders.

Treasury bills and their effect on Zimbabwean banks

A lot of the domestic debt is accumulated through Treasury Bills. The government issued TBs to fund its deficit and pay for its large salary bill, along with financing parastatals' operations. Another source of government debt was the overdraft facility with the RBZ, in December 2017 this facility was $1.4 billion, and it ballooned to $2.5 billion by September 2018.

A lot happened in 2018, primarily the fall of the Zimbabwean RTGs currency. Zimbabwe's currency has faced a lot of controversial policies for the past two years, which have resulted in its collapse.

This is bad news for local debt holders since they denominate their loans in local currency.

Zimfact put the domestic debt at $6 billion at the end of 2017. At the time that amount was equivalent to USD 6 billion, but due to the introduction and fall of the local currency, that amount is worth USD 400 million as of mid-September 2019 and still falling. Not only has the fall resulted in a loss of value, but banks will also have trouble capitalizing on continuing operations.

Other consequences of huge debt

As it stands, the Zimbabwean government is struggling to get productive financing from international institutions because of its bad debt reputation. The decimation of local bank capital has resulted in unavailable finances. The exponential borrowing by the government has also left very little debt available for the private sector. The lack of access to funding has been a perennial issue for Zimbabwe's private sector and has left it with no options for capitalization or expansion.

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