Assess the effectiveness of the public debt management strategies that have been adopted in

Zimbabwe from 1980 to date.

Introduction

Zimbabwe has engaged in numerous strides in attempting to clear its public debt, Zimbabwe’s
public debt has been accumulating exponentially to unsustainable levels since 1980 and
continues to being an albatross to the economic development initiatives in the country and is
presenting major challenges to debt sustainability and clearance. The events that led to spike in
borrowing started in the 1980s from a public spending spree by the Zimbabwe government to
stimulate the economy through rapid finance developmental expenditure. Continual borrowing to
finance developmental expenditure has led to the current debt overhang situation the country is
experiencing. The strategies which the government of Zimbabwe has adopted in order to service
its accumulated debt include debt structuring, loan bridging, debt refinancing and leveraging of
natural resources among others
Definition of terms

Public debt management - is the process of establishing and executing a strategy for managing
the government debt in order to raise the required amount of funding at the lowest possible cost
over medium to long term and to meet any other debt management goals the government may
have set, such as developing and maintaining an efficient market for government securities in
consistent with a prudent degree of risk, UNDP Zimbabwe Brown Bag Dialogue series (2012),

Public debt- is defined as debt liabilities of public and private sector units, the servicing of which
is contractually guaranteed by public sector units. These guarantees consist of loan and other
payment guarantees, which are a specific type of one-off guarantees. S.Mustapha and A.Prizzon
(2015)

Debt management strategy- is a rolling medium-term plan the government intends to implement
to achieve the desired debt composition. It involves analyzing cost-risk trade-offs of alternative
options, and it is often cost and risk tolerance/acceptance levels. Public Debt Management
Advisory, World Bank (2017)

To deal with the disproportionately high domestic debt, the country engaged in domestic debt
structuring. Debt structuring involves shifting the composition of domestic debt from short-term
to medium and long-term the arrangement involving both the creditor and the debtor to alter the
terms established for servicing an existing debt. Krueger. O. A (2002). The government of
Zimbabwe in 2001 restructured domestic debt so that at least 30% became medium to long term
while 70% was converted to treasury bills maturities were structured as 91 days, six months and
one year, Zimbabwe Coalition on Debt and Development, ZIMCODD, (2019), however, with the
debt restructuring strategy in place, the domestic debt ballooned to 98.5% by 2007 which
prompted to further restructuring in 2008. Again this strategy was mainly focused on domestic
debt and there was no deliberate policy to repay the external debt. In a nutshell debt restructuring
failed to achieve the intended results.

Also Zimbabwe promulgated the move to undertake debt refinancing strategy which involves
borrowing a new loan to repay or prepay an existing debt. This borrowing to repay strategy
mainly depends on the currency denomination and the interest rate structure of the new loan.
Using this strategy the country is able to extinguish expensive short-term debt and borrow for
longer periods at favorable terms and conditions. While debt refinancing offers temporary relief
on foreign obligations, it merely postpones debt service, without permanently resolving the
country’s external debt problems. In Zimbabwe, most short-term foreign loans attract the London
Interbank Offered Rate (LIBOR) rate, plus some premium. There is little likelihood, therefore,
that the country would be able to refinance its debt at these interest rates. The country’s
perceived risk might make it difficult to attract funds from abroad. Refinancing, however, is
more favorable when it is done as a bridging finance to trigger Paris Club negotiations.
Chigumira et al (2018)

In pursuit of debt relief and development, the government of Zimbabwe adopted the Sustainable
and Holistic Debt Strategy in 2010. This was a hybrid model which involved a combination of
traditional debt resolution initiatives and creative leveraging of the country’s natural resources
for economic development, Zimbabwe Coalition on Debt and Development, ZIMCODD, (2019),
However the government was not clear on the policy proposal regarding leveraging of mineral
resources. Also sweating the country’s natural resources to service the debt is facing major
drawbacks as there are loopholes need to be plugged in especially in the mining sector where the
country’s natural resources are under threat due to rampant corruption and opacity in the sector.

The Government in 2010 launched the Zimbabwe Accelerated Arrears Clearance, Debt and
Development Strategy (ZAADDS) which has led to significant progress in dealing with the debt
stock, UNDP Zimbabwe Brown Bag Dialogue series (2012). The strategy calls for the
operationalization of a debt management office, undertaking a validation and reconciliation
exercise of the external debt data-base. Approved by the cabinet in 2010, ZAADDS was
developed against the background of Zimbabwe’s unsustainable debt overhang and the country’s
lack of capacity to address the debt burden and attract new financing. This however did not look
into circumstances under which the debt was accrued, terms thereof, status, costs, use of the loan
(whether it was used for intended purposes) and if objectives were met .Afrodad. (2010).

In 2015 the government of Zimbabwe adopted the Lima strategy which was premised on the use
of domestic resources to clear arrears to the African development Bank, use of a bridge loan to
clear AfDB group debt arrears and use of a medium to long-term loan facility to clear arrears to
the World Bank Group

The government proposed the use of the bridge loan facility that was arranged with the African
Export-Import Bank (Afrexim Bank), this was aimed to provide immediate cash flow to the
country to clear the outstanding arrears to African Development Bank of US$585 million and
African Development Fund (ADF) holdings of US$16 million by December 2015. There is
however no information on progress made in pursuit of this strategy, but the African
Development Bank (AfDB) loan is still outstanding

As according to the Lima strategy, the government coveted to the adoption of medium to long
term loans of 10 to 15 years to service its debt with the African Development Bank. However the
strategy was simply a shift of the debt burden from the previous and current generation to the
future generation. This debt which is coming to cover another debt does not have the potential to
create capital which can only be financed by the future generation through compulsory tax
payments. It would be a disservice for the government to adopt a debt repayment plan that
undermines the principle of intergenerational equity.

As a strategic policy response to the debt overhang, the country considered a debt relief
mechanism under the Heavily Indebted Poor Countries (HIPC) initiative and make use of fresh
financing from international institutions and mineral wealth to achieve sustainable development
in the context of ZAADDS. This option entails fulfilling IMF conditions which require structural
adjustments including privatization of public entities, in which case the country will not have the
autonomy to implement its own policies.

Also the government engages in the move to re-engagement with its creditors and the
international community for the removal of sanctions as well as negotiating for arrears clearance,
new financing and comprehensive debt relief through the new dispensation. Reengagement with
the international community continues to face delays. The Zimbabwean government has yet to
define the modalities and financing to clear arrears to the World Bank and other multilateral
institutions, and to undertake reforms that would facilitate resolution of arrears with bilateral
creditors. IMF Executive Board Article IV (2020). The attempt failed to hold water as there is
inconsistence of policy and poor governance in the execution of the policy and the government
also failed to put in place economic reforms needed by the international community.

In conclusion, the government of Zimbabwe need to come up with optimal strategies for debt
and arrears resolution, which entrenches fiscal sustainability, sustained economic growth and
social cohesion. The country must engage in robust debt clearance plan with low interest rates or
otherwise this will somewhat crowd out social expenditures as well as players in the private
sector with adverse implications on attainment of Sustainable Development Goals. Also the
Government should capitalize on provisions of engaging the Paris and non-Paris club to
negotiate for debt write-offs to restore sustainability. Government also needs to pursue policies
that support medium-term growth by promoting An Assessment of Arrears Clearance Strategy
and Sustainable Debt Options with the growth of human and physical capital, and by increasing
productivity to ensure strong and broad-based growth. This growth will enable the government to
rebuild fiscal buffers, improve government balances, and anchor public debt. Government should
also commit to firmly put its fiscal deficits within sustainable ranges by mobilizing revenues,
rationalizing spending, and improve spending efficiency. Also the government should put in
place measure to eradicate financial leakages as well as corruption, this is witnessed in the way
money is leaving the country though our porous border posts.
Reference
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The Debt Issue