The elite must settle their debts
On June 13, 2014 the Reserve Bank of Zimbabwe Debt Assumption Bill was gazetted. This was for the government to assume a US$1,3 billion debt owed to the central bank by several creditors, most of them political elites.
In June 2021, another Debt Assumption Bill was gazetted; for the state to assume the debts of the beleaguered national airline, Air Zimbabwe.
Debt assumptions have torched a storm. Civil society sees debt assumptions as setting a bad precedent of protecting corrupt political elites, whilst burdening the poor and vulnerable through unjust taxes.
Zimbabwe’s formal, direct income tax sources have dwindled over the years with deindustrialisation, just as the poor person’s (indirect) taxes now contribute significantly more to the state budget.
This article examines the implications for civil society policy advocacy of debt assumptions, in the context of recommendations of the Auditor-General. The question is: how responsive are duty bearers to growing civil society demands?
Civil society voices
The Zimbabwe Coalition on Debt and Development, Zimcodd, is a leading civil society organisation and think-tank on debt, and economic policy issues, facilitating citizen involvement in the crafting of public policies that are pro-people and pro-poor.
Key advocacy challenges are unsustainable public policies and shrinking civic (financial, legal, social) spaces. Citizen demands are for open policy discourse around fiscal/economic transparency, debt justice, and concrete policy alternatives.
The 2015 Reserve Bank of Zimbabwe (Debt Assumption) Act 2015 sought to provide for settlement of US$1,3 billion in liabilities incurred by the Reserve Bank of Zimbabwe RBZ. These liabilities were linked to the 2007 Tractor Mechanisation Scheme, which was designed to transform agriculture in Zimbabwe.
The Tractor Mechanisation Scheme, which targeted newly resettled farmers, sought to boost agricultural output and to consolidate gains of the fast-track land reform programme through recapitalisation. The recapitalisation programme included acquisition of irrigation equipment, brand new tractors, combine harvesters and implements.
Newly resettled farmers would benefit from farm implements on a rent-tobuy basis. Most of the beneficiaries of the Tractor Mechanisation Scheme were based in Mashonaland East, Mashonaland West and Mashonaland Central provinces.
Eight years later, in 2015, studies revealed that the Tractor Mechanisation scheme had not only largely benefitted political elites, but there were also no repayments on all the loans contracted.
Civil society concerns highlighted the need for beneficiaries of the Tractor Mechanisation Scheme to repay their loans. A Petition was submitted by civil society organisations, including Zimcodd, the African Forum and Network on Debt and Development (Afrodad), the Zimbabwe Environmental Law Association (Zela), the Zimbabwe Lawyers for Human Rights (ZLHR), the National Youth Development Trust (NYDT), and Combined Harare Residents Association (CHRA) implored the National Assembly to:
• Reject the Reserve Bank (Debt Assumption) Bill;
•• Set-up a Public Debt Commission; Recommend that the RBZ liquidate its non-core assets to pay off the portion of the debt that was incurred for the public good;
• Recommend that individuals who benefited privately from the debt pay off the relevant portion of the debt; and
• Enact a law that sets limits on borrowings by the state, the public debt and debts and obligations whose payment or repayment is guaranteed by the state as prescribed by Section 300 of the Constitution.
Seven years later, on June 17, 2021 Zimbabwe’s cabinet prepared the Air Zimbabwe Debt Assumption Bill, for the government to assume Air Zimbabwe’s debts of ZW$340 million (US$3,8 million) (local) and US$30 million (foreign) – ‘The goal being to ensure revival of the airline from perennial loss’.
Former finance minister Tendai Biti indicated that debt assumption was tantamount to rewarding fraudulent parastatals.
“It is wrong to take over the debt of a badly and fraudulently run parastatals. These parastatals have become feeding troughs for the boys and Zanu PF,” Tendai Biti said in an Interview with NewsHawks, June 15 2021)
Failure of good stewardship
The debt assumption bills have become one recourse for the government to redress public financial management challenges. However, as many studies, including internal reports by the Auditor-General confirm, debt assumptions are one manifestation of serious challenges in government’s public financial policy management.
A major concern is the recycling of policy solutions that fail to address root causes of policy challenges. Several reports note that Air Zimbabwe’s accumulated debts resulted from serious management deficits at the organisation. The RBZ debt assumption may not have been necessary had the Tractor Mechanisation project been designed and managed as a commercial, rather than political venture.
Among its core functions, the AuditorGeneral “examines, audits and reports on all accounts of all persons entrusted with public monies or state property, auditing all institutions and agencies of government, including statutory bodies or government controlled entities”.
Auditor-General reports highlight serious deficits in financial governance, including the failure of accountability mechanisms in public entities, good stewardship over public resources, absence of management and financial controls, violation of procurement procedures by central government, non-compliance of state bodies with statutory regulations, non-compliance with International Financial Reporting Standards which results in reputational risk, and non-remittance of statutory and other obligations. Serious weaknesses emanating from internal governance and procurement issues characterise most government departments.
Examples include the Civil Aviation Authority that purchased mobile phones for board members worth US$6 265 without parent ministry approvals in 2017; the accumulated losses of the GMB (amounting to US$208 968 178 in 2017), which created “material uncertainty and doubt about the board’s ability to continue to operate as a going concern”.
The 2017 report also notes use of government funds as collateral for private loans, Goromonzi Rural District Council incurring non-council related expenditure (repairs to the District Administrator’s vehicle), and the Marondera Municipality paying fees for the survey of a Councilors’ private 38 stands.
2017-2018 AG reports on State Enterprises reflect 10% increase in reporting by parastatals, but submissions show decline in financial performance, a sharp increase in adverse reporting and weak corporate governance constituting 80% of total findings.
In 2018, the National Airline Air Zimbabwe failed to provide supporting documentation for US$13 705 014 in operating expenses, and there were no controls and authorisations for the War Veterans Fund.
Concluding observations
• Debt assumptions are a mechanism for transferring debt burdens emanating from financial malpractices and corruption onto the backs of taxpayers. The perpetuation of these malpractices entrench a culture of impunity, and waste
• Policy dialogues encompassing civil society are critical in campaigns for fiscal/economic transparency, economic literacy, justice, and the generation of concrete policy alternatives. This further highlights the importance of advocacy for capacity building in public institutions, the value of a model “Alternative Economy We Want”, empowering communities, pursuing new opportunities for dialogue, and development policy prescriptions that are pro-poor.
• There is a need for Public Financial Management in Zimbabwe underpinned by values that foster transparency and accountability, focused on issues of socio economic justice, sustainable livelihoods, effective public resource management, and inclusiveness.
Manyanya is an economist and policy analyst. These weekly column, New Horizon, is published in the Zimbabwe Independent and co-ordinated by Lovemore Kadenge, an independent consultant, past president of the Zimbabwe Economics Society and past president of the Institute of Chartered Secretaries & Administrators in Zimbabwe. — kadenge.zes@gmail.com or mobile: +263 772 382 852.