The government is set to borrow ZW$ 9 trillion, approximately US$640 million, largely from the domestic market to cover its 2024 budget gap, a move many fear may rattle the local financial market.
Zimbabwe’s government has largely relied on the domestic market to raise funds to meet budget deficits owing to strained relationships with international financiers over failure to meet debt payments.
A debt crisis has made it difficult for the country to access long-term external loans for many years.
In its 2024 Annual Borrowing Plan, government plans to meet its gross financing gap through issuance of Treasury bills and bonds amounting to ZW$5.8 trillion on the domestic market while externally, it will rely on disbursements from existing external loans amounting to ZW$367 billion and new external loan disbursements amounting to ZW$2.9 trillion.
Of the ZW$ 9 trillion, 67 percent will be from the domestic market and the balance offshore.
Treasury bills and bonds will have a tenure ranging between 90 days to 365 days.
“The strategy is to gradually lengthen the maturities of Government securities going forward. Uptake for medium to long-term Government securities is expected to increase given the projected stable macroeconomic environment, which is characterized by low inflation and a stable exchange rate,” said Treasury.
“The Government plans to raise its financing requirements through the auction system and private placements. The strategy seeks to promote the development of the secondary market by issuing medium- to long-term Treasury bonds and to enforce adherence to the prescribed asset status, for insurance companies and pension funds as required by law.”
There are concerns around the government’s continued accumulation of debt which could spell future problems for the economy.
According to the Treasury, as at the end of September 2023, total public and publicly guaranteed debt stood at US$ 17.7 billion, marginally up by 0.6%, in annual terms from US$17.6 billion a year earlier.
Of the total debt, external debt stood at US$12.7 billion comprising bilateral debt (US$6 billion), multilateral debt (US$3.1 billion), and Reserve Bank of Zimbabwe (RBZ) debt (US$3.6 billion).
Domestic debt stood at US$5 billion consisting of compensation to former farm owners (69.7%), government securities (29.2%), and arrears to service providers (1.1%).
Huge domestic borrowing by the government does not only crowd-out the private sector from accessing loans from local financiers, but in the context of Zimbabwe, it also triggers fears of excess printing of money by the government to settle its obligations which leads to higher inflation.
When governments borrow, they must meet interest obligations, and these are usually paid out of increased taxes.
The development comes at a time African governments have been shut out of global debt markets by crises that have made foreign borrowing too expensive.
Record high interest rates in most developed economies have made the global money market unattractive hence the need for governments to mobilize resources inward.
