Heavy indebtedness: Cause of Zimbabwe’s socio-economic crisis

By Almot Maqolo

The projected slump of the Zimbabwean economy in 2020 coupled with the additional burdens on scarce resources imposed by the Covid-19 pandemic will likely lead to an increase in the budget deficit, Zimbabwe Coalition on Debt and Development (Zimcodd) has said.

Zimcodd said heavy indebtedness is one of the causes of the country’s socio-economic crisis. By recent estimates Zimbabwe has an external debt of about US$10.545 billion as at September 2019 and domestic debt of about ZWL$8.868 billion as at December 2019.

“It puts our government under pressure to divert resources away from public service provision in order to finance debt repayment obligations,” Zimcodd stated.“Adherence to fiscal rules is critical to contain the budget deficit as well as to create fiscal space for debt repayment. Zimbabwe has a robust legislative framework and enough internal resources but the enduring challenge has been weak accountability mechanisms and the absence of political will to enforce compliance.”

Zimcodd said no country can function without debt, yet it is possible to achieve sustainable economic growth and shared prosperity by strengthening domestic resource mobilisation and promoting public resource accountability. However, it said this is only possible where there is a comprehensive Debt Management Policy.“Compliance and adherence to legal debt management provisions are easier in an environment of progressive political and economic reforms,” it said.

Zimcodd added that: “Government must therefore adhere to constitutional provisions relating to debt management that set limits on state borrowing, public debt, and state guarantees, full disclosure and transparency on public debt in a comprehensive manner among others.”According to Zimcodd, several drivers of the country’s worrisome debt position includes accumulation of arrears, penalties and borrowing at commercial rates which drives the debt upwards to more than the actual credit extended to government and government agencies. The Quasi-fiscal operations of the RBZ occurring as they do, outside the automated public financial management information system with no penalties to offending ministries, departments and agencies who wilfully ignore provisions of the Public Finance Management Act contributes to the ballooning of the budget deficit.

Poor fiscal accounting and corruption around public resources leading to unnecessary public borrowing. Overreliance on commodity exports which exposes our economy to volatile commodity prices which undermines efforts to create a healthy balance of payments position..Inability to borrow at concessionary rates from traditional bilateral and multilateral Creditors which hampers access to long-term capital. Zimbabwe’s high-country risk rating makes available loans costly while a rise in debt from non-traditional sources pose new challenges for resolving debt dispute.

Additional contingent liabilities including the recent compensation agreement for displaced farmers and additional fiscal costs from RBZ debt assumption and quasi-fiscal activities. The RBZ will compensate some stakeholders for losses incurred following the currency conversion estimated at about US$1.2 billion. This legacy debt increases the real value of domestic debt and worsens Zimbabwe’s debt distress.

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