Zimbabwe’s external creditors slammed for 55% interest on principal debt

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By Alois  Vinga

A huge chunk of the country’s external debt has been worsened by exorbitant Principal Arrears (PRA) and Interest Rates (IRA) which in turn subdues the country’s repayment efforts, Zimbabwe Coalition on Debt and Development (ZIMCODD) has bemoaned.

The 2023 analysis of the Public Debt Report published by the ZIMCODD this week says the granular analysis of the public debt report shows that the primary drivers of public debt in Zimbabwe are arrears and penalties on existing debts.

“Of the US$12.7 billion total external PPG debt, principal arrears (PRA), interest arrears (IRA), and penalties (PEN) alone constitute 54.9% (US$6.98 billion). From another angle, of the combined bilateral and multilateral debt amounting to US$9.1 billion, about 76% (US$7 billion) are PRA, IRA, and PEN.

“The penalty interest rate charged by creditors is exorbitant; for instance, the highest penalty rate for bilateral creditors is 12.2%, while the highest penalty rate for multilateral creditors is 10.5%,” the analysis reads in part.

The report also establishes that the debt default of the early 2000s, coupled with a shrinking economy, has attracted prohibitive penalties and subdued the capacity to service debts, thus trapping Zimbabwe in a debt overhang position.

“Also, due to these high debt arrears, access to concessionary loan finance has been blocked. As such, predatory creditors are taking advantage of Zimbabwe’s debt crisis by fueling debt expansion – mortgaging natural resources and mineral revenues.

In addition, the public debt report also shows that debt stock is driven by government debt guarantees, particularly in agriculture. For example, as of the end of September 2023, non-performing guarantees (NPGs) totalled US$198.01 million and ZWL3.1 trillion.

About 98.4% of these NPGs supported farmers, with some loans having recovery rates as low as 20%.

“The fact that taxpayers end up assuming NPGs they have never benefited from, as most beneficiaries are the ruling class and their connected few, has created a moral hazard, leading to more debt accumulation,” the organ said.

In December 2022, the government established a ‘Structured Dialogue Platform’ with all its creditors and development partners, to institutionalise structured dialogue on economic and governance reforms to underpin the arrears clearance and debt resolution process.

Since then, the country has been conducting debt-structured dialogues with its creditors to map a way forward on its debt arrears clearance strategy.

This comes as external debt stood at US$12,68 billion as of the end of September 2023.