Zim to continue reeling in debt distress
ZIMBABWE has been included in the list of African countries that would remain in financial hardship due to the significant disadvantage that those with high levels of debt face in the global financial system.
According to the 2024 national budget, the country’s total external debt stock as at end September 2023 amounted to US$12, 7 billion, including liabilities on the central bank balance sheet assumed by the Treasury.
Of the total external debt stock, the bilateral and multilateral debt amounted to US$9,1 billion, of which 76% are principal arrears, interest arrears and penalties.
In its latest report, Tax Justice Network Africa (TJNA) said African countries will continue to face severe financial pressures in debt repayments due to the state of the global financial system and debt architecture.
“It is not just that African countries have borrowed too much, it is also the fact that the global financial system and debt architecture is severely stacked up against indebted countries,” Afronomicslaw founding editor James Gathii is quoted as saying in the report.
Gathii highlighted that private creditors have also been pulling out of developing countries, leaving them with fewer financing options.
“Private creditors stand first in line to be paid out of any revenue collections ahead of domestic expenditures on basics such as health, education and housing,” he said.
“Private creditors are not interested in restructuring debts when a default happens, since they make more money by refraining or delaying restructuring.
“In the absence of a fair and balanced restructuring mechanism that accommodates both creditor and debtor interests, the debt crisis will continue to spiral out of control.”
Gathii said countries qualified to borrow from the International Development Association (IDA) are likely to experience high interest rates making the debt crisis inevitable.
“Countries eligible to borrow from IDA are likely to have a rough ride in the coming years: Interest payments on their total external debt stock have quadrupled since 2012, to an all-time high of US$23,6 billion, explaining why the debt crisis is not about to slow down come 2024.”
The report stated that one of the contributors to Africa’s debt situation has been the continent’s inability to raise resources domestically to fund its own development.
TJNA executive director Chenai Mukumba said African countries mainly rely on tax revenue to pay off debts there by making it difficult for improving public services.
“According to latest statistics, African
countries’ tax-to-GDP (gross domestic product) ratio hovers around 15%, which is the lowest in the world and half the tax-to-GDP rate of OECD (Organisation for Economic Cooperation and Development) countries,” she said.
“As we look at the implications of the debt crisis on countries’ tax revenue, it is important to note that it is largely tax revenue that is used to pay off countries’ debts.
“As such we then have limited tax revenue that is going to crucial public services that are largely used by lowincome households and marginalised individuals within our societies.”
She suggested that it is important to increase the domestic resource mobilisation efforts by plugging the gaps where they tend to lose most of the resources, which is through tax avoidance and tax evasion; tax abuse practices largely perpetuated by multinational corporations.