China's writeoff means little to Zimbabwe's overall debt - CNBC Africa

China's writeoff means little to Zimbabwe's overall debt

Southern Africa

by Trust Matsilele 0

Zimbabwe's President Robert Mugabe is battling to steer the sinking ship. PHOTO: Wikipedia

Zimbabwe has a long way to go in addressing its arrears; this is despite China cancelling the country’s 40 million US dollars debt last December.

The Southern African economy’s debt cancellation has been hailed as significant, but minute, as it only amounted to less than one per cent of Zimbabwe’s total public and publicly guaranteed external debt (and arrears) at the end of 2015.

At year-end 2015, Zimbabwe had arrears of 1.15 billion US dollars to the World Bank, 601 million US dollars to the African Development Bank (AfDB; Aaa stable) and 110 million US dollars to the IMF.

The country, according to Moody’s, has to address policy issues that have deterred investors from doing business in the once breadbasket of Africa.

“Overall, unclear property rights, a rigid business environment, limited access to credit, low capacity utilisation, irregular supply of energy and high electricity tariffs, shortages of skilled labour, infrastructure deficits and weak governance are key factors constraining growth and hence sovereign credit quality,” said the ratings agency.

“The sovereign faces external competitiveness challenges, with a substantially overvalued real exchange rate, a declining share of its exports globally, low reserves and subdued trend growth.”

Zimbabwe is also facing competitiveness challenges coupled with bottlenecks.

The country has a high public wage bill and the challenging business environment which weaken competitiveness.

“The key bottlenecks include a high public wage bill which accounts for more than half of fiscal expenditures, risk of policy reversals as well as relatively inflexible labour markets and constraining business environment.

Zimbabwe has been reforming its business environment under the IMF staff-monitored programme to make it more conducive to Foreign Direct Investment.