Debt situation weighs on regional economies
HEAVY indebtedness is proving to be at the core of the region’s challenges – Zimbabwe included, with experts calling for quick sustainable debt management solutions.
A two day Zimbabwe Public Debt Indaba convened by the Zimbabwe Coalition on Debt and Development (ZIMCODD) from 29 to30 March 2022, highlighted shared concerns amongst civil society and policy makers over the deepening debt crisis in Zimbabwe and the SADC Region at large.
Speakers from Zimbabwe, Malawi, Zambia, Mozambique and the United Kingdom concurred the debt situation in the region required a holistic approach as a matter of urgency to allow the region to grow.
This comes as debt servicing diverts money meant to finance public expenditure resulting in poor access to basic services – health, education, water, and sanitation while local industry cannot access cheap loans from international funders due to the country’s debt profile, which is deemed risky.
Latest International Monetary Fund (IMF) debt statics, confirm the reversal of nominal microeconomic gains, the consolidated debt is now projected at US$19.03 billion at the conclusion of the Article IV Consultation with Zimbabwe on March 21, 2022, which acknowledged fiscal gains.
The US$19,03 billion consolidated public sector debt represent 68,1 percent of GDP, a threshold above acceptable ratio, with public and publicly guaranteed external debt standing at US$17,59 billion, of which arrears are at US$13,1 billion. “These are not numbers, but drivers of poverty and inequality in Zimbabwe, why women in Binga, for instance, struggle to access maternal health care. Debt is ballooning amid the spiralling illicit financial flows and failure to widen Government revenue from the country’s vast mineral wealth,” said ZIMCODD.
Government has a US$12 billion mineral export earnings target by 2023, as the sector is expected to continue to anchor economic growth. However, the debt situation continues to weigh down economic growth prospects.
The economy has also experienced severe exogenous shocks (Cyclone Idai, protracted drought, and the Covid-19 pandemic) which led to a deep recession and high inflation slowing progress towards restoring macroeconomic stability. Commenting on the debt situation, a Malawian delegate, Mike Banda said the debt crisis was not unique to Zimbabwe alone but cut across the region as his country was also battling the negative impacts of debt. He called on capacitation of regional Parliaments to strengthen their voice in playing their oversight role when contracting debts.
“There is a lot of money being used to service debt at the expense of social service delivery and this is a challenge across the region. The other problem is weakness by our Parliaments on their role in loan contraction,” he said.
The Reserve Bank of Zimbabwe (RBZ) quasi fiscal activities, loans and guarantees by government, as well as interest and penalties on debts has also exacerbated the debt crisis as these are stamped without parliamentary oversight.
However, there are ongoing efforts to address the challenge as underpinned by the Medium Term Debt Strategy (MDTS) as well as engaging with multilateral creditors and cutting Government recurrent expenditure.
Recommendations tendered by the civic society beyond the taxation of the public, call for focus on domestic resource mobilisation, restructuring of current debt and renegotiation of loans contracted with bilateral agreements. “Adoption of policy mix to manage risks of contraction of public debt is key to a wide range of options including the reform of current weak legislative frameworks as well strengthening parliamentary oversight.
“While the Ministry of Finance has now introduced an Annual Debt bulletin there is need for comprehensive debt audits, public debt registers as well as legal reforms to limit debt contraction without parliamentary oversight,” said ZIMCODD.