Zimbabwe’s public debt position presents an unusual paradox. After more than two decades of exclusion from international capital markets, the country remains burdened by substantial external arrears, yet its headline debt-to-GDP ratio is comparatively moderate by African and emerging-market standards.
By Brighton Musonza
Zimbabwe’s public and publicly guaranteed debt stood at about US$21.8 billion at the end of 2025, equivalent to 37.4% of GDP. External debt accounted for approximately US$11.8 billion, while domestic debt stood at about US$10.1 billion.
The headline figures therefore suggest a relatively contained debt burden. The deeper problem, however, is the composition of that debt, the accumulation of arrears, the country’s restricted access to international finance and the sovereign-risk premium that consequently affects the entire economy.
The Paradox of Financial Exclusion
There is a compelling argument that Zimbabwe’s prolonged exclusion from international capital markets inadvertently prevented the accumulation of a much larger conventional sovereign debt burden.
Countries with unrestricted access to international borrowing can finance infrastructure, refinance existing obligations and support economic activity. But unrestricted borrowing can also encourage governments to postpone difficult fiscal reforms and accumulate liabilities faster than productive capacity expands.
Zimbabwe largely lost that ability.
The exclusion imposed enormous economic costs, particularly by depriving the country of affordable long-term development finance. Yet it also meant that Zimbabwe could not continuously access international markets to finance expanding fiscal deficits.
The paradox is therefore straightforward: financial exclusion starved Zimbabwe of capital while simultaneously protecting it from some of the excessive borrowing experienced elsewhere.
Debt-to-GDP Does Not Tell the Whole Story
A debt-to-GDP ratio of 37.4% appears relatively comfortable compared with many African and emerging-market economies carrying debt burdens of 60%, 70% or even 100% of GDP.
But debt sustainability is not determined by the ratio alone.
Two countries can have identical debt-to-GDP ratios while possessing completely different financial positions. One may have deep domestic capital markets, long-term bond financing, strong institutional investors and continuous access to international refinancing. The other may have accumulated arrears, limited market access and expensive domestic financing.
Zimbabwe is much closer to the latter.
Its fundamental problem is therefore not simply how much it owes, but who it owes, how much is in arrears, the cost of servicing it and what those obligations prevent the country from accessing.
The US$8 Billion Arrears Problem
The defining feature of Zimbabwe’s external debt is accumulated arrears.
Approximately US$8 billion of the country’s external obligations consists of arrears accumulated over many years of default and restricted international market access.
That is economically different from borrowing US$8 billion today and beginning to service it tomorrow. A claim that has remained unpaid for two decades has a fundamentally different present economic value from its original face value.
This is precisely why sovereign debt restructuring exists.
The objective is not necessarily to force a distressed country to repay every historical dollar at face value. It is to restructure the liability in a manner that gives creditors a realistic recovery while restoring the debtor’s capacity to grow and repay.
Zimbabwe therefore needs to negotiate according to present value, repayment capacity and future economic sustainability, rather than political emotion.
The “Peter and Paul” Problem
One of the strongest criticisms of arrears clearance is that Zimbabwe cannot simply borrow from Peter to pay Paul.
The argument has merit if new borrowing merely replaces one liability with another without improving the country’s financial position.
But bridge financing can make economic sense if clearing arrears unlocks substantially cheaper and larger pools of development finance.
The crucial question is therefore not whether Zimbabwe borrows to settle arrears.
The question is what the repayment unlocks.
If a US$2.5 billion facility simply replaces old expensive debt with new expensive debt, Zimbabwe gains little.
If the same financing clears arrears, restores access to multilateral institutions, lowers the sovereign-risk premium and unlocks several billion dollars of cheaper long-term financing, the transaction becomes economically transformative.
The bridge loan would then be a gateway to financial reintegration rather than merely another liability.
Zimbabwe Must Not Confuse Market Access With Unlimited Borrowing
There is a serious danger once Zimbabwe regains access to international capital markets. The objective cannot simply be to return to a position where Government can borrow again.
The objective must be to borrow more cheaply and more intelligently.
A loan that finances electricity generation, irrigation, rail infrastructure or export-processing capacity can increase the economy’s productive capacity and generate foreign exchange. A loan used to finance recurrent consumption does not necessarily create the income required to service it.
The principle should therefore be simple: borrow against productive capacity, not political promises.
Argentina’s Warning
Argentina provides one of the clearest international warnings.
The country has repeatedly accessed international capital markets, accumulated substantial sovereign liabilities and subsequently experienced repeated debt crises and restructurings.
The lesson for Zimbabwe is not that borrowing is inherently harmful. It is that access to credit is not synonymous with economic sustainability.
Capital markets can finance development when borrowing is supported by credible institutions, productive investment and sustainable fiscal and monetary policies. Without those foundations, borrowing can merely postpone adjustment and ultimately magnify the crisis.
Zimbabwe must therefore ensure that regaining market access does not recreate the conditions that produced debt distress elsewhere.
Zambia and Ghana’s Lessons
Zambia and Ghana provide more immediate African examples.
Both countries experienced debt distress after accumulating substantial sovereign liabilities and subsequently entered restructuring processes.
Their experiences demonstrate that debt sustainability depends on more than debt-to-GDP ratios. Interest rates, currency exposure, maturities, debt-service obligations, fiscal revenues and investor confidence all matter.
Zimbabwe should study these cases carefully.
After spending more than two decades trying to regain access to international finance, it would be economically irresponsible to regain that access only to repeat the borrowing patterns that ultimately forced other African economies into restructuring.
South Africa and the Importance of Market Depth
South Africa provides a contrasting example.
Its government debt is considerably higher than Zimbabwe’s as a proportion of GDP, but South Africa possesses deep domestic capital markets, sophisticated institutional investors, an established government bond market and continuing access to international finance.
That infrastructure matters.
It demonstrates that the quality and depth of financial markets can sometimes be more important than the debt ratio itself.
Zimbabwe therefore needs to think beyond reducing its debt-to-GDP ratio. It needs to reduce the risk premium attached to the Zimbabwean economy.
The Real Prize Is Cheaper Capital
The greatest benefit of successful debt restructuring may not be the financing immediately provided by international institutions.
It is the potential reduction in the cost of capital throughout the economy.
Sovereign risk ultimately spreads into the private sector. It affects bank funding costs, trade finance, corporate borrowing, infrastructure investment and the return demanded by international investors.
When a sovereign is excluded from international finance, businesses effectively inherit part of that sovereign-risk premium.
Resolving the sovereign problem can therefore reduce financing costs across the economy.
Debt restructuring should consequently be regarded as economic infrastructure.
Debt Resolution Is Also a Geopolitical Process
Zimbabwe’s creditors are not a single bloc. They include Paris Club governments, non-Paris Club creditors, multilateral institutions and regional financial institutions.
The restructuring process is therefore simultaneously financial and geopolitical.
Zimbabwe needs a sophisticated strategy that maintains relationships with Western creditors, China, African institutions, Gulf investors and other emerging-market partners.
The objective should be financial diversification without geopolitical dependency.
Zimbabwe should not replace dependence on one financial bloc with dependence on another.
Sanctions Are Part of the Story, But Not the Whole Story
Zimbabwe’s financial isolation cannot be explained exclusively through external sanctions.
External restrictions undoubtedly contributed to the country’s isolation, but domestic policy failures, sovereign default, monetary instability, governance concerns, fiscal weaknesses and inconsistent economic policies also played significant roles.
The more credible interpretation is that domestic weaknesses and external financial restrictions reinforced one another.
The objective now should not be to determine which side carries all the blame. It should be to dismantle the mechanisms that have kept Zimbabwe financially isolated.
The Architecture for Re-entry Is Emerging
There are signs that Zimbabwe is moving towards that objective.
The IMF’s 10-month Staff-Monitored Programme is intended to strengthen macroeconomic management, fiscal discipline, monetary policy, governance and the country’s pathway towards debt resolution.
The African Development Bank has also committed additional resources towards strengthening Zimbabwe’s arrears-clearance process, debt management and related institutional reforms.
These developments matter because debt resolution is not merely an accounting exercise.
It is fundamentally a credibility-building process.
Policy Recommendation: Negotiate on Present Value
Zimbabwe should pursue a restructuring framework based on net present value, repayment capacity and long-term debt sustainability.
The country should seek maturity extensions, concessional terms, interest relief and, where economically justified, reductions in principal.
The central question should be whether the restructuring creates a sustainable debt position capable of surviving economic shocks.
Policy Recommendation: Turn Arrears Clearance Into an Investment Strategy
Every dollar devoted to arrears clearance should be evaluated against what it unlocks.
Government should establish a transparent framework showing how arrears settlement would affect access to multilateral finance, borrowing costs, foreign investment and infrastructure financing.
This would transform debt restructuring from an opaque financial negotiation into a measurable economic investment.
Policy Recommendation: Establish a Post-Restructuring Debt Rule
Zimbabwe needs a clear post-restructuring borrowing framework.
External borrowing should be linked to productive investment, export capacity and measurable economic returns.
New commercial borrowing should require credible evidence that the project will generate sufficient economic value or foreign exchange to service the liability.
The country must avoid replacing debt distress with a new borrowing cycle.
Policy Recommendation: Rebuild Investment Banking
Debt resolution alone will not transform Zimbabwe.
The country needs a sophisticated financial infrastructure capable of converting restored international access into productive investment.
That means developing investment banking, corporate underwriting, project finance, infrastructure finance, private equity, venture capital, export finance and long-term institutional investment.
Zimbabwe needs financial institutions capable of connecting domestic companies with international pools of capital.
The objective should not simply be for Government to issue sovereign debt.
It should be for Zimbabwean companies themselves to gain access to equity, bonds, international investors and sophisticated corporate finance.
Policy Recommendation: Crowd in Domestic Capital
International capital should complement rather than replace domestic savings.
Pension funds, insurance companies, banks, development finance institutions and private investors should participate in professionally structured infrastructure and industrial projects.
International capital should be used to crowd in domestic investment, deepen financial markets and increase the availability of long-term financing.
Link Borrowing to Export Capacity
Future external borrowing should increasingly target sectors capable of generating foreign currency.
Mining, mineral beneficiation, agriculture, manufacturing, energy, tourism and logistics should form the core of an export-oriented borrowing strategy. The distinction is crucial.
Borrowing dollars to consume dollars creates a future repayment problem. Borrowing dollars to build an export-generating asset can create the foreign exchange necessary to service the debt.
Policy Recommendation: Prioritise Energy and Infrastructure
Reliable electricity and efficient logistics should be among the first destinations for restored long-term capital.
Electricity shortages raise production costs across mining, manufacturing and agriculture. Poor transport infrastructure increases the cost of exporting and importing.
Investment in energy, railways, roads, water and digital infrastructure therefore has the potential to improve economy-wide productivity.
Infrastructure should be treated as a productive investment rather than merely government expenditure.
Policy Recommendation: Reduce Sovereign Risk for the Private Sector
Debt resolution should deliberately translate into cheaper private-sector finance.
Zimbabwe should work with international financial institutions to establish credit guarantees, risk-sharing facilities, trade-finance programmes and investment-insurance mechanisms.
The objective should be to ensure that sovereign rehabilitation reaches companies operating in the real economy.
Policy Recommendation: Publish a Comprehensive Debt Dashboard
Government should publish a comprehensive and regularly updated debt database covering creditors, maturities, interest rates, arrears, guarantees and restructuring agreements.
Transparency reduces uncertainty. Reduced uncertainty lowers the risk premium. A credible debt-management system would therefore become an important component of Zimbabwe’s strategy to rebuild investor confidence.
The Biggest Risk Comes After Debt Resolution
The most dangerous moment may ultimately be the day Zimbabwe regains access to international finance.
There will be enormous pressure to borrow.
The country will have infrastructure deficits, social needs and private-sector financing requirements. International lenders will once again be willing to provide capital.
But the question should never simply be how much can Zimbabwe borrow?
It should be how much can Zimbabwe productively invest while maintaining debt sustainability?
Every major external loan should therefore answer three questions: What will it finance? What economic return will it generate? And where will the foreign exchange required to service it come from?
If those questions cannot be answered convincingly, Zimbabwe should not borrow.
Conclusion: The Reset Matters More Than the Rescue
Zimbabwe’s debt position requires a more sophisticated interpretation than the conventional narrative of a heavily indebted economy.
At 37.4% of GDP, the headline debt ratio is not, by itself, the country’s greatest economic weakness. The greater problem is that a substantial portion of external obligations is in arrears, leaving Zimbabwe disconnected from the international financial system and imposing a risk premium across the economy.
That weakness also contains an opportunity.
Zimbabwe has already experienced the painful consequences of financial exclusion: deteriorating infrastructure, expensive domestic finance, constrained investment and prolonged shortages of long-term capital.
The objective now must be to ensure that financial reintegration produces a fundamentally different economic model.
Debt restructuring should therefore be regarded as the beginning of the economic reset, not the end of the crisis.
Zimbabwe needs a credible currency and monetary framework, disciplined fiscal institutions, deep capital markets, investment banking, development finance, reliable infrastructure and competitive export industries.
The country does not merely need to become capable of borrowing again.
It needs to become capable of borrowing intelligently, investing productively, generating foreign exchange and converting capital into sustained economic growth.
That is the real economic prize of debt resolution.
If Zimbabwe gets the institutional architecture right, the US$21.8 billion debt stock may ultimately prove less important to its future than the financial system and productive economy built after the debt crisis has been resolved.
