By Dennis Ndlovu|Zim GBC News
Zimbabwe is among a growing number of low- and middle-income countries increasingly relying on domestic borrowing to finance budget deficits, as access to foreign capital remains costly and limited, the World Bank’s International Debt Report 2025 reveals.
The report finds that across 86 countries with available data, more than half 50 in total recorded domestic debt growth outpacing external debt growth from 2023 to 2024. Zimbabwe is listed in the report’s country tables and reflects this trend, as the government leans on local banks and investors to fund spending.
“Among many LMICs, a decrease or containment of the growth of external indebtedness has been offset by increases in domestic borrowing,” the report states.
“This trend has been developing over the past decade as the expansion of domestic debt markets has allowed countries to fund fiscal deficits amid repeated shocks, growing development needs, and sluggish revenue growth.”
The shift is driven by tighter global financial conditions, high external borrowing costs, and the need to avoid currency risk. However, the World Bank warns that domestic debt often comes with shorter maturities and higher rollover risks.
“Domestic debt tends to be of a shorter maturity than external debt and is consequently more susceptible to rollover risk. Heavy reliance on domestic debt increases this risk, as well as the risk associated with increased interest rates,” the report cautions.
In Zimbabwe, where domestic debt is largely held by local banks, this creates a
sovereign-bank nexus that could amplify financial sector vulnerabilities.
The report explains, “With domestic banks preferring to (or being pressured to) lend to the government, their exposure to the sovereign grows and creates a balance sheet interconnectedness, that can amplify macroeconomic risks when public debt sustainability problems arise.”
The World Bank also notes that high government borrowing can crowd out private sector credit, stifling economic growth.
“Government borrowing of this type usually comes at the expense of the private sector: local commercial banks load up on government bonds when they should be lending to the private sector.”
Despite the risks, developing domestic debt markets is seen as a step toward financial resilience. The report highlights that countries like Kenya, Nigeria, and Côte d’Ivoire have successfully tapped international bond markets after developing local investor bases.
For Zimbabwe, which remains excluded from international capital markets, domestic borrowing provides a temporary lifeline but is not a long-term solution.
“Strong legal and regulatory frameworks are essential for proper public debt management and the overall soundness of the domestic financial system, ” the report stressed
As Zimbabwe continues to navigate its debt challenges, the World Bank’s findings underscore the delicate balance between financing immediate needs and ensuring sustainable debt management a balance that will define the country’s fiscal health in the years ahead.
Follow Zim GBC News for More Updates:
🌐 Website: www.zimgbcnews.co.zw
🐦 X (Twitter): @ZimGbc
📘 Facebook: Zim GBC News