Simulation analysis of alternative strategies for public debt issuance in Zimbabwe: Is there a trade-off?

2017-12-19 09:33:30 Viewed: 235 Downloads: 72
  • Simulation analysis of alternative strategies for public debt issuance in Zimbabwe: Is there a trade-off?

      Nebson Mupunga and PierreLe Roux

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    Pub: 2017-12-19 09:33:30

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  • This paper presents a simulation of alternative strategies for public debt issuance
    in Zimbabwe. The analysis is undertaken with a view to find a strategy that
    minimises the cost and risk of public debt under different scenarios of interest
    and exchange rate developments. The premise is that increases in debt service
    charges due to risky allocation of public debt can substantially change public
    debt dynamics. The risky allocation can derive from an excessive exposure of
    the government to exchange rate, interest rate and commodity price shocks. The
    results show a trade-off between a debt strategy that largely depends on more
    external concessional borrowing and a debt strategy aimed at increasing the share
    of domestic debt in the public debt portfolio for market development purposes.
    While the strategy that maximises recourse to external concessional borrowing
    was found to be desirable from a cost perspective, it proved to be less desirable
    from a risk perspective after taking into consideration the exchange rate effect.
    Moreover the conditions attached by international financial institutions and
    other official creditors to accessing concessional loans makes the strategy less
    desirable. The results, therefore, underscore the need for authorities to ensure a
    neat balance between external and domestic debt borrowing to ensure long-term
    public debt sustainability.

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  • Keywords

    Public debt management, Debt cost, Risk


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