Since the early 2000s, China has been involved in a significant number of projects, which include the expansion of the Victoria Falls International Airport and the Kariba Hydropower Station on the Zambezi River, which is the country’s primary source of electricity.
Currently, significant infrastructure projects supported by Chinese investors in the country include the renovation of Robert Mugabe International Airport, the expansion of the Hwange Thermal Station, and the building of dams.
By the end of December 2021, Zimbabwe’s external debt had increased as a result of the loans to $13.35 billion. The administration of President Mnangagwa also promised to pay $3.5 billion to compensate white Zimbabweans whose commercial farms were taken during the contentious land reform program in the early 2000s.
With predictions that the combined external and domestic debts of Zimbabwe now exceed $19 billion, this debt has also caused local debt obligations to reach unsustainable levels. However, given the instability of the local currency and the accumulating arrears, particularly those arising from Chinese loans, it is the foreign debt that is causing the government problems.
According to a report published by Zimbabwe’s ministry of finance debt management office, huge external debt has resulted in a lack of access to official external financing.
Zimbabwe is still unable to obtain financing from the Bretton Woods organization due to its debts to the World Bank, African Development Bank, and European Investment Bank.
After Zimbabwe defaulted on loans nearly two decades ago, major international bankers, including the World Bank, the International Monetary Fund (IMF), and members of the Paris Club, placed Zimbabwe on a blacklist. The IMF is generally prohibited from providing financing to any member country that owes money to other international financial organizations.
In 2021, the southern African nation only paid $59.30 to service its outstanding foreign debt, including token transfers of $9.60 million to multilateral banks and Paris Club creditors.
The debt management agency stated in the study that Zimbabwe is already defaulting on active Chinese loans, which is preventing money from being disbursed for ongoing projects. According to the report, the situation has become intolerable because the value of the public debt is expected to be 50.9 percent of GDP, which is more than the threshold of 35 percent set by the Low-Income Country DSA Framework.
Zimbabwe is considering joining the Heavily Indebted Poor Country (HIPC) program, an initiative started by the World Bank and IMF that allows for complete debt forgiveness for underdeveloped nations. The country is also still considering the non-HIPC route that involves debt restructuring and arrears clearance through bridge finance.
According to the Zimbabwe Coalition on Debt and Development (ZIMCODD), the country requires true political and economic reforms to be able to service its debts. The IMF noted Harare’s lack of progress in implementing these reforms in accordance with the expectations of creditors and the international community in its conclusion of the 2021 staff monitored programme.
While the two choices under consideration in Harare’s debt strategy are enough to bring about a long-lasting resolution to the debt crisis, the strategy has also exposed the negative impacts of toxic politics on economic advancement.
In addition, Zimbabwe has been mortgaging its enormous mineral wealth in exchange for loans from China. In a report titled “Developing Economies Should Think Hard About Taking on Resource-Based Loans.” The World Bank stated that Zimbabwe had also established plans with China to repay loans via mortgaging of natural resources.
The World Bank reported that Zimbabwe obtained a $200 million loan from China Eximbank in 2006 for the acquisition of agricultural equipment, with the platinum deposits in the Selous and Northfields reserves serving as security.
The instability of the Zimbabwean currency is also making it difficult for the government to service its debt. After a decade of dollarization, Zimbabwe’s currency was restored in 2019, and since then, it has been losing value against the world’s major currencies. It presently trades at ZW $378.2 to the US dollar on the official market, while one US dollar comfortably fetches around 1000 Zimbabwe dollars on the frequently utilized parallel market.