eBusiness Weekly
Zimbabwe’s current sovereign debt is regarded unsustainable estimated at $66,8 billion as of June 2019. External debt is estimated at US$8,1 billion (about $59 billion) and 72 percent of that is in accumulated arrears. On the other hand, domestic debt ballooned at a fast pace from zero in 2011 to current levels of $8,8 billion, representing around 13 percent of the total debt. Analysts have argued this is a sign of limited access to external financing, putting pressure on Government as options for borrowing remain narrow. It is under this backdrop that the African Forum and Network on Debt Development (AFRODAD) in conjunction with the Zimbabwe Coalition on Debt and Development (ZIMCODD) convened the Zimbabwe Multi-Stakeholder Public Debt Conference on enhancing public resources transparency and accountability. Our business reporter Enacy Mapakame (EM) discussed the significance of the conference and the impact of debt on economic development with ZIMCODD socio- economic analyst Tafadzwa Chikumbu (TC).
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EM: Can you give a brief background to this conference, what is it about?
TC: We have convened this two-day conference to discuss one of the key issues affecting the country, which is the debt issue. We thought we should take advantage of this time of the year when Parliament and Ministry of Finance (and Economic Development) are seized with the 2020 National Budget, and thought we could also inform the process and see where we are in terms of debt sustainability and the next debt strategy. So this conference has brought together civil society organisations, parliamentarians, the academia, universities and researchers as well as regional partners to give us their perspective on debt management for instance in Mozambique, Zambia and the region as well.
EM: Are you happy with the deliberations from the conference?
TC: We had an opportunity to share information, specific case studies, figures and how that informed policy as well as how they managed. This conference triggered debate and we got perspective from the church as well. One of the most important thing was it brought perspective to the Zimbabwe and China relationship as well as interrogate the Chinese debt- that is what we owe them. We may know what we owe to IMF and WB but there is no clarity on exactly how much we owe to China. The Deputy Ambassador (Zhao Baogang), however, clarified some of the myths we have about the nature of the relationship between Zimbabwe and China although there is still more we need for transparency and accountability. He laid out clearly that it is not their responsibility to provide certain information to Zimbabwean citizens and highlighted that it is the role of our Government to provide all the information we may need to know, for instance figures on how much loans we get from them, the terms and conditions and all the related information.
EM: Apart from the deliberations with China’s Deputy Ambassador to Zimbabwe, what have been the key take-aways from the conference?
TC: The key take away is that different stakeholders have a significant role to play in addressing this debt issue. The private sector has a key role to play because they are equally affected especially the domestic debt, which crowds out domestic investment, even the external debt because it has an overall impact on the state of our economy. If the economy is not performing, the private sector is not spared. They have a role to play to ensure our economy is back on its feet but it depends on the macro economic framework that the government should set so that private sector performs and that will translate to more revenue attained. Then Government becomes more sustainable instead of looking out for financial resources, we can actually sustain ourselves, although we cannot live in a vacuum but we can live within debt sustainability levels.
EM: What determines a country’s level of debt?
TC: A country can borrow but there are specific statutes within a country that determines the sustainability of debt. One of the key benchmarks, which is in our Public Finance Management Act and Public Debt Management Act, is that our borrowing should not exceed 30 percent of the revenue we used in the previous year. But this has not been followed, if it had been followed I am sure it would have kept our debt at sustainable levels. But in 2018 we were supposed to borrow around US$729 million but ended up borrowing domestically through issuance of Treasury Bills and RBZ overdraft to the tune of over US$2 billion, which was way more than what is stipulated.
There is a general practice, globally the EU set debt to GDP ratio at 60 percent and the SADC is also consistent with this standard. But our threshold is at 70 percent.
EM: So is every debt bad?
TC: It is a responsibility of Government to fund its national budget and there are different sources of finance development.
The first pot of call is domestic resource mobilisation through taxes and non-taxes that are collected domestically. But in the event there is a deficit, the next option is to borrow. Borrowing is really not bad but intended to addresses social and economic human rights, health, education, water and sanitation. The challenge we have is when a country borrows and fail to pay the arrears and interests end up exceeding the principal debt and when that happens it becomes a problem. For us, the bulk of the external debt is in arrears and interests. This makes people look at debt in a negative way. In 2019 Budget Government said it would cut funding to social services so as to save some resources for debt repayment.
EM: Is it possible for Zimbabwe to fund infrastructure projects without borrowing?
TC: For now, we have far exceeded our debt to GDP ratio, we have over borrowed and in arrears, we don’t have a plan for repayments. Only until we get to a point we have enough indications of generating enough resources for repaying that is when we can move towards borrowing.
For infrastructure development I would support other forms of funding such as PPPs, like the build own operate transfer where the private sector develops the infrastructure for an agreed period then later hand it over to Government. Debt for now is not the best option to go.
EM: What has been the impact of debt on Zimbabwe?
TC: Debt has been a major cause for concern especially on determining our fiscal space. The Government has failed to repay its debts and rely on domestic borrowing. At the end of the day when we borrow domestically, we crowd out private investment, the amount that was supposed to fund private sector projects is the one that will be lended to Government.
Debt has an impact on socio economic human rights. Failure to repay debt attract foreign policies, currently Government is implementing austerity measures, which were prescribed by lenders. These are not commensurate with our environment because this has an impact to access to education, health, clean water and sanitation. This affects men and women differently, for women they take care of sick family members at home in the absence of good healthcare system, they have to fetch water for families in the shortages of water. The future generations are also affected, because the debts we are grappling with are from the pre- year 2000 period and yet children born in 2019 are still affected.
EM: How can the country’s debt situation be resolved? Can it be resolved at all?
TC: The current debt situation requires a systematic approach which should start with a comprehensive debt audit to understand how much exactly we owe and are the creditors. There are also possibilities of hidden debts that we really don’t know about. Once we do that then the debt strategy should not be a blanket one but target the specific creditors, we should have a specific resolution to such specific creditors.
Some debts for were borrowed not for the right purposes, for instance the RBZ debt, those who borrowed for farming equipment should take responsibility for that but without a debt audit to see who these people are and if they have capacity to repay, then it becomes a problem.
EM: Do you think the Vision 2030 is attainable with such a debt overhang?
TC: There is always a relationship between debt and GDP. Our vision 2030 is becoming an upper middle income economy by 2030, so without addressing the debt issue which has affected private sector performance, and the level of social service delivery in the country, I don’t think its achievable.
As we come up with discussions for the vision 2030, then the debt issue must be looked and it is one of the key issue that the current Government wants to address. If you look at Austerity for Prosperity, it’s a strategy to come up with some change that should go towards service debt. The TSP is also hinged on re-engagement with multi-lenders because Government also realises that without addressing the debt situation, it may be difficult to become an upper middle income economy by 2030.
