eBusiness Weekly
Business Writer
The era of reckless spending by line ministries and public entities is over as Government has started operationalising the Public Debt Management Regulations, 2019 that are meant to curb the country’s ballooning national debt as well as ensure that approved loans and guarantees do not exceed the annual borrowing ceiling, Business Weekly can reveal.
The regulations among other things are also designed to ensure that the overall increase in debt is sustainable.
Zimbabwe currently has a ballooning domestic and external debt hovering around US$17 and $18 billion according to official statistics, a result of a combination of factors spanning from perennial budget deficits to fiscal indiscipline.
The ballooning debt has made it imperative that the country establish a sustainable debt management plan, which the new regulations are now expected to introduce.
The new regulations, which are contained in Statutory Instrument 79 of 2019, will see the establishment of an External and Domestic Debt Committee (EDDC) that will be tasked with making recommendations to the Ministry of Finance on all external borrowings, domestic debt issuances and guarantees among other things.
The committee, which shall be aided by a technical EDDC working party, will also make recommendations to the Minister on public debt management policy and strategy.
The Public Debt Management Office, which is already housed in the Ministry of Finance, will act as secretariat to the EDDC in terms of section 7 of the Act.
Statutory Instrument 79 of 2019 also contains guidelines for raising loans, securities and issuing guarantees by Government, line ministries and public entities.
“Any line ministry or public entity that intends to benefit from borrowed resources in the form of a loan, security or guarantee shall be required to submit to Treasury, their annual borrowing plan for inclusion into the National Budget and Government’s Annual Borrowing Plan before the initiation of the Budget formulation process in line with priorities in the National Development Plan and those provided for in section 12 of the Act.
According to the regulations, any proposal or project request for a loan, security or guarantee by line ministries and public entities will have to be approved by the EDDC.
Borrowing requests that come before the EDDC are also expected to meet certain pre-set conditions that include but not limited to making sure that they are based on project priorities outlined in the country’s economic development plan.
For any guarantee or on-lending that shall be issued in accordance with section 20 of the Act, the public entity for whose benefit such guarantee or on-lending is given, must “demonstrates to the satisfaction of the Minister, that the project is viable and it has provided proof of other resources to cover the loan in the event of default”.
The EDDC will also have to recommend limits on guarantees (including portfolio limits, sector limits, entity specific limits based on risk assessment) to the Minister and subsequently the National Assembly, which will also have to approve limits on guarantees upon recommendations.
Overall, the Minister shall furnish the Parliament and other stakeholders, at least twice a year with a report on Government debt management activities, including guarantees and lending in accordance with section 36 of the Act.
More stringent measures
During the life of the guarantee, the project shall be subjected to annual internal and external audits; monitoring by independent consultants where applicable depending on the nature and magnitude of the project; as well as monitoring and evaluation done jointly by the line ministry and the Ministry of Finance.
“Beneficiaries of a debt shall provide relevant information on use of funds, disbursements, accounting, and degree of implementation of the project financed, and conduct regular consultations with Public Debt Management Office.”
In case of default, the beneficiaries of guarantees are expected reimburse Government, all costs (principal, interest, penalties, expenses, fees) incurred by Government but only after the Public Debt Management Office has assessed the circumstances of the default and is satisfied with the extent of due diligence exercised by the borrower.
“Before an assumption of debt is considered an assessment and due diligence on the circumstances of default must be conducted in conjunction with the responsible Ministry,” reads SI 79 of 2019.
The far-reaching reforms are thus expected to curb the recurrence of borrowings not meant for key projects.
There reforms are also in line with calls by independent bodies such as Zimbabwe Coalition on Debt and Development (ZIMCODD) for the country to implement a debt sustainability plan.
According to ZIMCODD, transparency, participation and accountability are important principles that should inform the lending and borrowing decisions in Zimbabwe.
“The Government must guarantee full disclosure of all relevant information regarding loan agreements, debt repayments, debt management, outcomes of public debt audits and other related matters.
“Respect of the Constitution is important across the budget cycle and this should start at the loan contraction stage to ensure that the debt is acquired in accordance with the law,” said ZIMCODD following the launch of a debt strategy resolution paper entitled Sustainable and Inclusive Debt Management Framework for Zimbabwe (SIDMaF) last week.
