Zimbabwe’s Total Public Debt is $11.1 billion (53.9% of GDP)

Zimbabwe’s total public debt is $11.1 billion (53.9% of GDP), of which 95.6% is external. including $6.4 billion in arrears to international financial institutions, bilateral, and private creditors. Zimbabwe has been in default since 2000. A Staff Monitored Program with the International Monetary Fund to help Zimbabwe implement economic policies from May 2019 to March 2020 collapsed in September 2019.

The government and the Fund have not agreed to a new arrangement, which would be aimed at helping Zimbabwe clear its arrears. As a result, the country will have to continue to rely largely on domestic resource mobilization and borrowing from non-Paris Club members like China. The international financial institutions will not resume lending until debt arrears are cleared.

After facing an economic crisis exacerbated by the COVID-19 (coronavirus) pandemic, Zimbabwe’s economy is set to rebound by 2.9% in 2021, supported by recovery of agriculture and due to base effects. Expected bumper harvest and continuation of rule-based monetary policy will stabilize food prices and improve food security. However, disruptions caused by the pandemic will continue to weigh on economic activity in Zimbabwe, limiting employment growth and improvements in living standards.

In 2020, gross domestic product (GDP) is estimated to have contacted by 8% for a second year in a row as COVID-19 halted economic recovery. Operating restrictions led to depressed manufacturing, non-mineral exports, and hospitality, trade, and transport sectors. Sales of manufacturing and services firms in July 2020 were about half sales in 2019. Supply-side shocks subsided after easing of mobility restrictions, but domestic demand was weak in an environment of triple-digit inflation, high unemployment and income losses. Demand for imports increased as several years of drought necessitated increased imports of maize and electricity while the pandemic presented new demands for lab equipment and medical supplies. The current account was in surplus, due to high remittances inflows and trade surplus.

Fiscal and monetary policy responses to the pandemic have been limited to contain volatility of prices. Fiscal policy remained tight despite wage pressures and additional spending needs to respond to the pandemic and growing number of poor. The fiscal balance turned into a small deficit of 1.3% of GDP in 2020. In June 2020, the Reserve Bank of Zimbabwe operationalized the reserve money targeting framework, floated the exchange rate, and introduced foreign auction. These measures helped to stabilize the parallel market exchange rate and reduce the parallel market premium, although it remained distortionary. As a result, inflation slowed down to 322% in February 2021 from its peak of 838% in July 2020.

The pandemic and its impacts disrupted livelihoods, especially in urban areas, and added 1.3 million to the extreme poor. Estimates suggest the number of extreme poor reached 7.9 million in 2020—almost 49% of the population. Surveys indicate that nearly 500,000 households have at least one member who lost their job in 2020, causing many to fall into poverty and worsening the plight of the existing poor. Urban households suffered most economically. Ninety percent of nonfarm businesses, which skew toward urban areas, indicated that they faced a drop in revenue or did not receive any revenue at all (ZIMSTAT Rapid PICES Phone Survey of July 2020). Wage earners in urban areas and the extreme poor were disproportionally affected by the pandemic, as their pay was either cut or not received at all. Rural households rely less on wage employment and nonfarm businesses.

Project preparations are underway for the Health Emergency Preparedness Response Trust Fund to contribute to the country’s National Vaccination and Deployment Strategy in line with a request from the Government.

Human Capital

Following a decade of positive progress in human capital indicators, pandemic has led to some deterioration in outcomes. Public resource constraints and implementation challenges severely affected service delivery. Access to remote learning amid school closures was limited in rural areas, especially for poor households. Less than 30% of school-going children in rural areas engaged in education and learning during pandemic-related school closures, compared with 70% for urban children (Zimstat, Rapid PICES phone survey July 2020). Supply-side challenges facing the health system—doctor strikes, reduced working hours for nurses, and inadequate quantities and slow access to personal protective equipment—contributed to a decline in the coverage and quality of essential health services. Decreases in the frequency and timing of antenatal care visits may cause a further deterioration in maternal and infant mortality indicators. Households’ loss of access to basic social services and deepening of negative coping strategies risk undermining Zimbabwe’s relatively high human capital and the pace and inclusivity of economic growth.

Development Challenges

The economic challenges and extraordinary shocks caused by the drought, cyclone, and pandemic provide opportunities to press forward with measures to protect lives and livelihoods, and support Zimbabwe’s longer-term recovery. The 2021-25 National Development Strategy1, sets out an ambitious plan to support the recovery. It is critical that Zimbabwe’s domestic policies support price stability and the optimal use of public resources, especially given large financing needs to prevent a deterioration in human capital. In addition, the economic stimuli provided to businesses should be carefully monitored, managed, and implemented to minimize wasteful spending and leverage the private sector. Meeting the Government 2030 aspiration of attaining upper middle-income status will also require authorities to strengthen governance; ensure greater transparency and accountability; and increase public financing and investments focused on critical sectors.