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Zimbabwe: Staff Report for the 2014 Article IV Consultation—Debt Sustainability Analysis

Author(s):
International Monetary Fund. African Dept.
Published Date:
July 2014
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Background

1. Following the recent debt reconciliation exercise by the authorities for end-2011 and end-2012, Zimbabwe’s total external debt has been estimated at about 70 percent of GDP (Text Tables 1 and 2). The Public and Publicly Guaranteed (PPG) external debt is broadly divided between bilateral creditors (60 percent) and multilateral creditors (40 percent). External private sector debt represents roughly 18 percent of total external debt. Compared to the 2012 DSA, there is a sharp downward revision of the total external debt stock ($2.5 billion), mainly driven by short-term private debt and supplier credits. The sharp revision to short-term private debt is caused by a change in assumptions: the BoP financing gap is no longer assumed to be covered with new short-term debt financing at the end of each year.

Text Table 1.Zimbabwe: Total External Debt Stock by Creditor, 2011-12 1/
20112012
In millions

of USD
In percent

of GDP
In millions

of USD
In percent

of GDP
Total823275.1903172.4
Public and Publicly Guaranteed Debt626857.2660352.9
Bilateral Creditors322529.4347627.9
Paris Club281125.7288123.1
Non-Paris Club4143.85954.8
Multilateral institutions244822.3252520.2
IMF1351.21271.0
AfDB6335.86605.3
WB129711.8134810.8
EIB3052.83132.5
Others780.7770.6
Short-term debt RBZ5955.46034.8
Private Sector196417.9242819.5
Sources: WB, AfDB, Zimbabwean authorities, and staff estimates.

For multilateral institutions, short-term debt, and suppliers’ credits, estimates reflect a compound factor. Late interest is included under interest arrears.

Sources: WB, AfDB, Zimbabwean authorities, and staff estimates.

For multilateral institutions, short-term debt, and suppliers’ credits, estimates reflect a compound factor. Late interest is included under interest arrears.

Text Table 2.Zimbabwe: 2012 External Debt Stock by Servicing Status (in millions of US dollars) 1/
Remaining

Principal Due
Total

Arrears
Principal

Arrears
Total Debt
Total3792524031919031
Public and Publicly Guaranteed Debt1364524031916603
Bilateral Creditors838263814323476
Paris Club367251313482881
Non-Paris Club47112584595
Multilateral institutions525199911572525
IMF0127100127
AfDB55606306660
WB4109375641348
EIB34279152313
Others26513477
Short-term debt RBZ0603603603
Private Creditors2428002428
Sources: WB, AfDB, Zimbabwean authorities, and staff estimates.

For multilateral institutions, short-term debt, and suppliers’ credits, estimates reflect a compound factor. Late interest is included under interest arrears.

Sources: WB, AfDB, Zimbabwean authorities, and staff estimates.

For multilateral institutions, short-term debt, and suppliers’ credits, estimates reflect a compound factor. Late interest is included under interest arrears.

2. This change in assumptions for the financing gap follows a recent IMF technical assistance mission on multi-sector statistics. This mission recommended that any unidentified financing or financing gap left at the end of each year be consolidated in the errors and omissions line. Errors and omissions are driven by large under-recorded exports (mainly minerals, owing to efforts to avoid international restrictive measures), remittances through non-banking channels, and certain FDI-related imports (mining companies recapitalized in kind by parents who send in equipment but do not report the related financing).

3. Zimbabwe has improved its debt management capacity and the Debt Management Office (DMO) established at the Ministry of Finance and Economic Development (MoFED) is now fully staffed. The unit has developed a database for external debt that should facilitate debt management and promote information sharing between all government entities involved. However, decisions on new external borrowing continue to be taken with limited involvement of technical staff, with substantial risks of making sub-optimal choices with implications for medium-term sustainability.

Box 1.Zimbabwe: Key Baseline Macroeconomic Assumptions

  • The baseline scenario assumes average annual real GDP growth of about 4 percent for the projection period (2014–33), with somewhat lower growth at the beginning of the projection period (3 percent in 2014-15). In the medium term, uncertainty around the potential of diamond resources, constrained public finances, and the severe bottlenecks facing Zimbabwe would result in lower growth than in the recent past. Mining investment projects (especially in gold and platinum) should contribute to a change in the composition of growth and make up for sluggish growth in agriculture and manufacturing. The baseline assumes macroeconomic stabilization, but does not assume normalized access to finance or scaled-up public or private investment.

  • Inflation is expected to be 2.5 percent over the medium term, accelerating from 0.2 percent in 2014.

  • Exports are projected to grow at 7 percent over the medium term, in nominal terms.

  • Import growth is projected to average 4 percent annually for the period 2014–19, and then increase to 5.5 percent until 2033.

  • The non-interest current account deficit is expected to remain above 25 percent of GDP in 2014. Thereafter, it would decline to 15 percent in 2019 and stabilize to an average of 13 percent throughout the remaining projection period.

  • Tax revenues are projected to remain broadly stable at around 27-28 percent of GDP. Gradual decline in customs revenues is expected to be offset by increases in other revenue sources.

  • External grants are assumed to remain confined to humanitarian assistance, estimated in the range of 0.5 percent of GDP per annum. Under the baseline scenario, policies are unchanged and there is no debt relief.

  • New non-concessional borrowing is assumed to average 1 percent of GDP annually during 2013-2016 and 2 percent of GDP from 2017 onwards,1 with a grant element of about 27 percent. The assumption here is that Zimbabwe will continue to receive limited financing from non-traditional creditors in exchange for regular payments to them.

  • While outstanding external arrears continue to be rolled over, the DSA assumes no accumulation of new external arrears.

1/ This assumption is based on loan disbursements, while the SMP ceiling monitors new non-concessional external borrowing contracted or guaranteed by the general government.

Assumptions

4. The macroeconomic framework underpinning medium to long-term debt sustainability takes into account recent economic developments and progress in structural reforms pursued under the 2013-2014 Staff-Monitored Program (SMP). The medium-term projections are broadly consistent with the 2012 DSA, but some updates have been made to better reflect the consequences of the recent slowdown in emerging market economies (such as South Africa) and its impact on exports and FDI. The baseline scenario assumes no debt relief given limited progress in re-engaging with the main traditional creditors to date and the complexities inherent in making any other assumption. Therefore, in the baseline new external borrowing is expected to remain limited to resources provided by non-traditional creditors, mainly Brazil, China, and India (Box 1). Zimbabwe’s CPIA rating has marginally improved since the 2012 DSA from 1.7 to 2.1.

5. Significant revisions have been made to the total external debt stock. The new estimates of external debt are based on the first results of the debt reconciliation exercise undertaken by the authorities. At end-2011, PPG external debt amounted to US$ 5.7 billion while private external debt reached US$ 1.7 billion after the change in the treatment of unidentified financing explained above. Compared to the 2012 DSA, total debt thus declined substantially, from 113 to 74 percent of GDP, largely due to this methodological change and to the recent substantial revision to the nominal GDP series.2

External Debt Sustainability

6. Even starting from a lower base than in the 2012 DSA, the PPG external debt overhang remains large (Table 1). Under the baseline, external debt is expected to continue to grow from 82 percent of GDP in 2013 to 122 percent in 2023, before declining to 108 percent in 2033. The present value (PV) of the PPG external debt will remain well above the 30 percent of GDP threshold during the entire projection period.3 The PV of the PPG external debt-to-exports ratio will reach 171 percent in 2013 and decline to 119 percent 2023, and to 98 percent by the end of the projection period. The PV of the external debt-to-revenue ratio shows a downward trend, declining steadily from almost 176 percent in 2013 to about 138 percent in 2023 and to 114 in 2033. This is driven by the assumption of moderate debt accumulation on non-concessional terms (2 percent of GDP) mentioned above.

Table 1.Zimbabwe: External Debt Sustainability Framework, Baseline Scenario, 2010-2033 1

(In percent, unless otherwise indicated 1/)

ActualHistorical6/

Average
Standard 6/

Deviation
Projections
2010201120122013201420152016201720182013-2018

Average
202320332019-2033

Average
External debt (nominal) 1/71.874.972.482.795.0106.8115.4120.8121.2122.1108.7
of which: public and publicly guaranteed (PPG)60.657.053.653.452.852.450.650.048.944.937.8
Change in external debt−17.03.1−2.510.312.311.88.65.40.4−0.7−1.3
Identified net debt-creating flows4.816.612.523.522.319.715.911.88.36.35.2
Non-interest current account deficit17.629.524.316.313.128.527.426.323.319.916.315.012.314.1
Deficit in balance of goods and services24.835.630.233.331.930.828.425.422.418.913.9
Exports36.742.832.729.730.531.231.832.934.434.934.7
Imports61.578.462.963.062.462.060.158.356.853.748.6
Net current transfers (negative = inflow)−12.6−14.0−13.5−8.35.0−12.6−11.5−12.0−11.8−11.6−11.1−9.7−7.6−9.0
of which: official−2.40.00.00.00.0−0.4−0.3−0.3−0.3−0.3−0.2
Other current account flows (negative = net inflow)5.58.07.57.87.17.46.86.25.15.76.0
Net FDI (negative = inflow)−1.0−3.3−2.8−1.21.1−2.9−2.6−4.0−3.9−3.8−3.7−4.4−3.4−4.0
Endogenous debt dynamics 2/−11.8−9.6−9.0−2.1−2.6−2.6−3.6−4.3−4.4−4.3−3.7
Contribution from nominal interest rate0.30.30.10.2−0.10.30.30.40.50.30.4
Contribution from real GDP growth−8.7−7.4−7.0−2.3−2.5−2.9−3.9−4.7−4.9−4.6−4.1
Contribution from price and exchange rate changes−3.4−2.5−2.2
Residual (3-4) 3/−21.8−13.6−15.0−13.2−9.9−7.9−7.3−6.5−7.9−6.9−6.5
of which: exceptional financing2.5−3.2−1.7−1.9−0.3−1.0−1.0−0.9−0.9−0.6−0.7
PV of external debt 4/69.880.192.7104.5113.2118.2118.1118.7104.8
In percent of exports213.7269.9304.5335.1356.3358.9343.4340.7301.9
PV of PPG external debt51.050.850.550.148.447.445.941.534.0
In percent of exports156.0171.2165.7160.5152.2144.0133.4119.097.8
In percent of government revenues181.9176.1169.6169.1162.5158.4153.5138.0114.7
Debt service-to-exports ratio (in percent)6.53.83.37.96.25.24.94.53.94.14.0
PPG debt service-to-exports ratio (in percent)0.90.70.42.32.32.22.22.22.22.43.8
PPG debt service-to-revenue ratio (in percent)1.41.20.52.42.32.42.32.42.52.84.5
Total gross financing need (Billions of U.S. dollars)2.33.73.64.75.15.66.26.87.110.719.6
Non-interest current account deficit that stabilizes debt ratio34.626.526.818.315.114.414.714.516.015.613.6
Key macroeconomic assumptions
Real GDP growth (in percent)11.411.910.6−1.211.13.33.13.23.94.34.43.74.04.04.0
GDP deflator in US dollar terms (change in percent)4.03.73.05.28.50.70.81.12.52.33.61.82.52.52.5
Effective interest rate (percent) 5/0.40.50.20.10.20.2−0.10.40.30.30.50.30.30.40.3
Growth of exports of G&S (US dollar terms, in percent)92.635.2−13.210.431.8−5.66.76.88.510.613.06.76.66.66.7
Growth of imports of G&S (US dollar terms, in percent)−6.447.9−8.717.335.74.12.93.73.23.45.43.84.94.55.6
Grant element of new public sector borrowing (in percent)28.928.921.922.927.827.926.427.326.126.8
Government revenues (excluding grants, in percent of GDP)23.326.728.028.829.829.629.829.929.930.129.630.0
Aid flows (in Billions of US dollars) 7/0.00.00.00.00.00.00.00.00.00.00.0
of which: Grants0.00.00.00.00.00.00.00.00.00.00.0
of which: Concessional loans0.00.00.00.00.00.00.00.00.00.00.0
Grant-equivalent financing (in percent of GDP) 8/0.40.30.20.20.60.60.60.60.6
Grant-equivalent financing (in percent of external financing) 8/28.928.921.922.927.827.927.326.126.8
Memorandum items:
Nominal GDP (Billions of US dollars)9.411.012.513.013.514.115.016.017.324.045.5
Nominal dollar GDP growth15.816.013.84.03.94.36.56.78.25.66.66.66.7
PV of PPG external debt (in Billions of US dollars)6.46.66.87.07.27.67.99.915.5
(PVt-PVt-1)/GDPt-1 (in percent)1.91.71.71.52.22.21.92.01.81.8
Gross workers’ remittances (Billions of US dollars)0.40.60.60.80.80.80.90.90.91.22.0
PV of PPG external debt (in percent of GDP + remittances)48.548.047.847.245.744.943.539.532.5
PV of PPG external debt (in percent of exports + remittances)134.6142.8139.7134.7128.6122.8115.1104.086.9
Debt service of PPG external debt (in percent of exports + remittances)0.41.91.91.91.81.91.92.13.4
Sources: Country authorities; and staff estimates and projections.

Includes both public and private sector external debt.

Derived as [r - g - ρ(1+g)]/(1+g + ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.

Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.

Assumes that PV of private sector debt is equivalent to its face value.

Current-year interest payments divided by previous period debt stock.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Defined as grants, concessional loans, and debt relief.

Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).

Sources: Country authorities; and staff estimates and projections.

Includes both public and private sector external debt.

Derived as [r - g - ρ(1+g)]/(1+g + ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.

Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.

Assumes that PV of private sector debt is equivalent to its face value.

Current-year interest payments divided by previous period debt stock.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Defined as grants, concessional loans, and debt relief.

Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).

7. Debt service as a share of exports and revenues will remain below the respective thresholds throughout the entire projection period. The overall debt service-to-exports ratio will remain close to 5 percent throughout the projection period, while the PPG debt service-to-exports ratio will remain around 2 percent until 2018, before slowly increasing to 3 percent in 2033.

8. These results remain broadly unchanged under alternative scenarios. The PV of the PPG external debt-to-GDP ratio is sensitive to lower GDP growth, reaching 69 percent in 2015 under the related bound test (Table 2a). In the case of a combined shock, the ratio will reach 88 percent in 2015, before declining to 44 percent in 2033. Under the lower exports scenario, the PV of the PPG external debt-to-exports ratio will reach almost 400 percent in 2015, before declining to just below 190 percent in 2033. Assuming lower FDI, the same ratio will reach 217 percent in 2015 and decline to around 102 percent by the end of the projection period. Similar results are obtained for all indicators under the lower GDP growth scenario and the less favorable borrowing terms scenario.

Table 2a.Zimbabwe: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2013-2033(In percent)
Projections
20132014201520162017201820232033
PV of debt-to-GDP ratio
Baseline5150504847464134
A. Alternative Scenarios
A1. Key variables at their historical averages in 2013-2033 1/5143373332344881
A2. New public sector loans on less favorable terms in 2013-2033 25151504949474541
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2014-20155159696766635747
B2. Export value growth at historical average minus one standard deviation in 2014-2015 3/5157676564625236
B3. US dollar GDP deflator at historical average minus one standard deviation in 2014-20155153545352504537
B4. Net non-debt creating flows at historical average minus one standard deviation in 2014-2015 4/5159686664625236
B5. Combination of B1-B4 using one-half standard deviation shocks5166888684816844
B6. One-time 30 percent nominal depreciation relative to the baseline in 2014 5/5172716968655948
PV of debt-to-exports ratio
Baseline17116616015214413311998
A. Alternative Scenarios
A1. Key variables at their historical averages in 2013-2033 1/1711411191049797136232
A2. New public sector loans on less favorable terms in 2013-2033 2171166162154147138129118
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2014-201517116616015214413311998
B2. Export value growth at historical average minus one standard deviation in 2014-2015 3/171252397377357330276189
B3. US dollar GDP deflator at historical average minus one standard deviation in 2014-201517116616015214413311998
B4. Net non-debt creating flows at historical average minus one standard deviation in 2014-2015 4/171192217207195181151102
B5. Combination of B1-B4 using one-half standard deviation shocks171220296282266246203132
B6. One-time 30 percent nominal depreciation relative to the baseline in 2014 5/17116616015214413311998
PV of debt-to-revenue ratio
Baseline176170169163158153138115
A. Alternative Scenarios
A1. Key variables at their historical averages in 2013-2033 1/176145126111107112158272
A2. New public sector loans on less favorable terms in 2013-2033 2176170170164162158149138
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2014-2015176199234225219212191159
B2. Export value growth at historical average minus one standard deviation in 2014-2015 3/176190227219213206174120
B3. US dollar GDP deflator at historical average minus one standard deviation in 2014-2015176177184177172167150125
B4. Net non-debt creating flows at historical average minus one standard deviation in 2014-2015 4/176197229221215208175120
B5. Combination of B1-B4 using one-half standard deviation shocks176220299288281272225149
B6. One-time 30 percent nominal depreciation relative to the baseline in 2014 5/176241241231226219196163
Sources: Country authorities; and staff estimates and projections.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is higher than in the baseline by 2 percentage points, while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

6/ Applies to all stress scenarios, except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.
Sources: Country authorities; and staff estimates and projections.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is higher than in the baseline by 2 percentage points, while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

6/ Applies to all stress scenarios, except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.
Table 2b.Zimbabwe: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2013-2033(In percent)
Projections
20132014201520162017201820232033
Debt service-to-exports ratio
Baseline22222224
A. Alternative Scenarios
A1. Key variables at their historical averages in 2013-2033 1/222111−19
A2. New public sector loans on less favorable terms in 2013-2033 222222236
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2014-201522222224
B2. Export value growth at historical average minus one standard deviation in 2014-2015 3/2357761111
B3. US dollar GDP deflator at historical average minus one standard deviation in 2014-201522222224
B4. Net non-debt creating flows at historical average minus one standard deviation in 2014-2015 4/22344466
B5. Combination of B1-B4 using one-half standard deviation shocks23455598
B6. One-time 30 percent nominal depreciation relative to the baseline in 2014 5/22222224
Debt service-to-revenue ratio
Baseline22222334
A. Alternative Scenarios
A1. Key variables at their historical averages in 2013-2033 1/222111−110
A2. New public sector loans on less favorable terms in 2013-2033 222222247
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2014-201523333346
B2. Export value growth at historical average minus one standard deviation in 2014-2015 3/22344477
B3. US dollar GDP deflator at historical average minus one standard deviation in 2014-201522333335
B4. Net non-debt creating flows at historical average minus one standard deviation in 2014-2015 4/22344477
B5. Combination of B1-B4 using one-half standard deviation shocks234565109
B6. One-time 30 percent nominal depreciation relative to the baseline in 2014 5/23333446
Memorandum item:
Grant element assumed on residual financing (i.e., financing required above baseline) 6/2424242424242424
Sources: Country authorities; and staff estimates and projections.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is higher than in the baseline by 2 percentage points, while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Applies to all stress scenarios, except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

Sources: Country authorities; and staff estimates and projections.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is higher than in the baseline by 2 percentage points, while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Applies to all stress scenarios, except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

Public Sector Debt Sustainability

9. While public debt remains at high levels, the outlook is expected to improve (Table 3). The PPG debt-to-GDP ratio is projected to decline modestly from 62 percent in 2013 to 51 percent in 2023, and then to 41 percent in 2033. The PV of the PPG debt-to-revenue ratio shows a similar profile, declining from 206 percent in 2013 to 123 percent in 2033. The debt service-to-revenue ratio will remain around 3 percent until 2023 and then gradually increase to 5 percent by the end of the projection period.

Table 3.Zimbabwe: Public Sector Debt Sustainability Framework, Baseline Scenario, 2010-2033(In percent of GDP, unless otherwise indicated)
ActualAverage 5/Standard 5/

Deviation
EstimateProjections
2010201120122013201420152016201720182013-18

Average
202320332019-33

Average
Public sector debt 1/67.565.162.562.064.464.160.960.058.151.041.1
of which: foreign-currency denominated67.565.162.562.064.464.160.960.058.151.041.1
Change in public sector debt−18.2−2.5−2.6−0.42.4−0.4−3.1−0.9−1.9−1.1−0.6
Identified debt-creating flows−10.5−6.9−6.60.1−0.2−3.0−4.7−4.1−5.1−3.9−3.3
Primary deficit0.82.11.11.91.42.32.1−0.9−1.4−1.0−1.4−0.1−1.2−1.2−1.2
Revenue and grants23.326.728.028.829.829.629.829.929.930.130.1
of which: grants0.00.00.00.00.00.00.00.00.00.00.0
Primary (noninterest) expenditure24.128.729.231.131.828.728.329.028.528.928.8
Automatic debt dynamics−11.4−9.0−7.7−2.2−2.2−2.0−3.3−3.1−3.7−2.7−2.1
Contribution from interest rate/growth differential−9.3−8.0−7.1−2.7−2.7−2.5−2.9−3.0−2.9−2.5−1.9
of which: contribution from average real interest rate−0.6−0.8−0.8−0.7−0.8−0.5−0.5−0.5−0.4−0.5−0.3
of which: contribution from real GDP growth−8.8−7.2−6.2−2.0−1.9−2.0−2.4−2.5−2.5−2.0−1.6
Contribution from real exchange rate depreciation−2.0−1.0−0.70.50.40.5−0.3−0.1−0.8
Other identified debt-creating flows0.00.00.00.00.00.00.00.00.00.00.0
Privatization receipts (negative)0.00.00.00.00.00.00.00.00.00.00.0
Recognition of implicit or contingent liabilities0.00.00.00.00.00.00.00.00.00.00.0
Debt relief (HIPC and other)0.00.00.00.00.00.00.00.00.00.00.0
Other (specify, e.g. bank recapitalization)0.00.00.00.00.00.00.00.00.00.00.0
Residual, including asset changes−7.74.54.0−0.52.62.61.63.23.22.92.7
Other Sustainability Indicators
PV of public sector debt59.959.462.261.858.757.455.047.737.2
of which: foreign-currency denominated59.959.462.261.858.757.455.047.737.2
of which: external51.050.850.550.148.447.445.941.534.0
PV of contingent liabilities (not included in public sector debt)
Gross financing need 2/6.68.38.410.29.48.88.27.66.94.72.7
PV of public sector debt-to-revenue and grants ratio (in percent)213.6206.0208.8208.6197.3191.8184.1158.5123.8
PV of public sector debt-to-revenue ratio (in percent)213.6206.0208.8208.6197.3191.8184.1158.5123.8
of which: external 3/181.9176.1169.6169.1162.5158.4153.5138.0113.0
Debt service-to-revenue and grants ratio (in percent) 4/1.41.20.62.53.03.43.43.53.53.54.8
Debt service-to-revenue ratio (in percent) 4/1.41.20.62.53.03.43.43.53.53.54.8
Primary deficit that stabilizes the debt-to-GDP ratio19.04.53.72.7−0.3−0.51.7−0.10.5−0.2−0.6
Key macroeconomic and fiscal assumptions
Real GDP growth (in percent)11.411.910.6−1.211.13.33.13.23.94.34.43.74.04.04.0
Average nominal interest rate on forex debt (in percent)0.40.50.30.60.90.40.21.01.11.21.40.91.11.31.1
Real exchange rate depreciation (in percent, + indicates depreciation)−2.6−1.6−1.2−2.18.30.8
Inflation rate (GDP deflator, in percent)4.03.73.05.09.60.70.81.12.52.33.61.82.52.52.5
Growth of real primary spending (deflated by GDP deflator, in percent)0.90.30.10.41.00.10.1−0.10.00.10.00.00.00.00.0
Grant element of new external borrowing (in percent)28.928.921.922.927.827.926.427.326.1
Sources: Country authorities; and staff estimates and projections.

[Indicate coverage of public sector, e.g., general government or nonfinancial public sector. Also whether net or gross debt is used.]

Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period.

Revenues excluding grants.

Debt service is defined as the sum of interest and amortization of medium and long-term debt.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Sources: Country authorities; and staff estimates and projections.

[Indicate coverage of public sector, e.g., general government or nonfinancial public sector. Also whether net or gross debt is used.]

Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period.

Revenues excluding grants.

Debt service is defined as the sum of interest and amortization of medium and long-term debt.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Box 2.Domestic Public Debt in Zimbabwe

Overall domestic public debt in Zimbabwe is low and stable, at around 8-9 percent of GDP.

However, this masks the diverging paths of its components. While the domestic debt of the Reserve Bank of Zimbabwe (RBZ) has been gradually shrinking, the stock of outstanding government securities has expanded, following the end of hyperinflation. Short-term domestic public debt has shrunk from 100 percent of the total in 2011 to 78 percent in 2013, as the government has managed to place securities with maturities of one year or more in the market. Finally, all of Zimbabwe’s domestic public debt is denominated in U.S. dollars.

Actual
201120122013
Total domestic public debt1/8871,1101,117
Domestic debt of the RBZ711709645
Government securities0188314
Domestic payment arrears176213158
Memorandum items:
Total domestic public debt (percent of GDP)8.18.98.6
Short-term domestic public debt (percent of total)2/100.083.978.1
Sources: Zimbabwean authorities; and IMF staff estimates and projections.

Millions of U.S. Dollars; unless otherwise indicated.

Domestic public debt with original maturity of less than one year.

Sources: Zimbabwean authorities; and IMF staff estimates and projections.

Millions of U.S. Dollars; unless otherwise indicated.

Domestic public debt with original maturity of less than one year.

10. Alternative and shock scenarios show a similar gradually rising trend of debt indicators (Table 4). Under the alternative scenario of lower GDP growth and primary balance at historical averages, the PV of the PPG debt-to-GDP ratio will increase from 59 percent in 2013 to 106 percent in 2023, and reach 175 percent by the end of the projection period. The PV of the PPG debt-to-revenue ratio will also deteriorate substantially under a low growth scenario. It goes from 206 percent in 2013 to above 500 percent by the end of the projection period. Finally, the debt service-to-revenue ratio will follow a similar path: a steady increase from 3 percent in 2013 to 32 percent in 2033. This reflects the fact that the scenario is based on historical averages for growth, which in Zimbabwe include a period of steep contraction in economic activity.

Table 4.Zimbabwe: Sensitivity Analysis for Key Indicators of Public Debt, 2013-2033
Projections
20132014201520162017201820232033
PV of Debt-to-GDP Ratio
Baseline5962625957554837
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages596569727781106175
A2. Primary balance is unchanged from 20135962646465656977
A3. Permanently lower GDP growth 1/59646666697092190
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2014-2015597799103109114141183
B2. Primary balance is at historical average minus one standard deviations in 2014-20155963666361595139
B3. Combination of B1-B2 using one half standard deviation shocks59697980838598120
B4. One-time 30 percent real depreciation in 20145987858178746246
B5. 10 percent of GDP increase in other debt-creating flows in 20145970696665625441
PV of Debt-to-Revenue Ratio 2/
Baseline206209209197192184158124
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages206217234243257270352582
A2. Primary balance is unchanged from 2013206209218216218219231256
A3. Permanently lower GDP growth 1/206216224223229235308633
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2014-2015206259334346365381469610
B2. Primary balance is at historical average minus one standard deviations in 2014-2015206212223211205197170131
B3. Combination of B1-B2 using one half standard deviation shocks206232266269278285327400
B4. One-time 30 percent real depreciation in 2014206292289273262249206152
B5. 10 percent of GDP increase in other debt-creating flows in 2014206234235222216208178137
Debt Service-to-Revenue Ratio 2/
Baseline33333345
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages3344561032
A2. Primary balance is unchanged from 2013333455715
A3. Permanently lower GDP growth 1/334445936
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2014-201534579101841
B2. Primary balance is at historical average minus one standard deviations in 2014-201533445456
B3. Combination of B1-B2 using one half standard deviation shocks3345671125
B4. One-time 30 percent real depreciation in 201434555568
B5. 10 percent of GDP increase in other debt-creating flows in 201433464466
Sources: Country authorities; and staff estimates and projections.

Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period.

Revenues are defined inclusive of grants.

Sources: Country authorities; and staff estimates and projections.

Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period.

Revenues are defined inclusive of grants.

Conclusions

11. Zimbabwe remains in debt distress in the baseline scenario of no debt relief. In the baseline scenario, which includes new non-concessional borrowing of 2 percent of GDP a year on average from 2017 onwards, Zimbabwe’s debt indicators remain above the relevant indicative thresholds. Zimbabwe’s debt situation is vulnerable to shocks, particularly to exports and GDP growth. Zimbabwe’s debt outlook also appears sensitive to FDI flows and to less favorable financial terms.

12. The Zimbabwean authorities share the staff assessment and therefore remain committed to re-engaging with all creditors, multilateral and bilateral. Staff encourages the authorities to continue to primarily seek grants and financing on terms as favorable as possible, ideally at highly concessional terms, to finance critical development projects with high economic returns. Limited non-concessional borrowing could be considered only if grants and concessional resources are unavailable or insufficient to implement critical growth-enhancing projects.

Figure 1.Zimbabwe: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2013-2033 1/

Sources: Country authorities; and staff estimates and projections.

1/ The most extreme stress test is the test that yields the highest ratio on or before 2023. In figure b. it corresponds to a Combination shock; in figure c. to an Exports shock; in figure d. to a Combination shock; in figure e. to an Exports shock; and in figure f. to a Combination shock.

Figure 2.Zimbabwe: Indicators of Public Debt Under Alternative Scenarios, 2013-2033 1/

Sources: Country authorities; and staff estimates and projections.

1/ The most extreme stress test is the test that yields the highest ratio on or before 2023.

2/ Revenues are defined inclusive of grants.

Staff Guidance Note on the Application of the Joint Bank-Fund Debt Sustainability Framework for Low-Income Countries (http://www.imf.org/external/np/pp/eng/2013/110513.pdf).

Zimbabwe’s statistical agency (ZIMSTAT) recently revised the GDP series since 2009. The new GDP series are 25-30 percent higher than the old ones.

The large residual is explained by the new assumption that any remaining financing gap in the balance of payments is treated as part of errors and omissions for both past and future years, rather than as generating new borrowing (as in the 2012 DSA).

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