Quality of democracy is the main difference
It was reported early this week that the European Union is supposedly willing to engage the new President’s administration and help facilitate negotiations with international financial institutions, on condition that government articulates democratic reforms.
Business Weekly editor, Happi Zengeni, shadowing Team Zimbabwe’s delegates at the World Economic Forum, also reported late Wednesday evening that the already running Lima debt clearance strategy received greater conviction among IFIs at Davos; this after a round of impressive forums and interviews by President Mnangagwa on the matter of elections.
These events can be interpreted as a stance by creditor nations and IFIs, that on condition President Mnangagwa’s administration gives assurance on the freedom and discretion of citizens at the ballots, financing will be availed.
Zimbabwe’s access to lending is on condition that democracy prevails on election day. It is not an illiterate suspicion that even if Mangudya and Chinamasa conjure up enough resources to clear arrears, say by tomorrow morning, no further financing will be given to Zimbabwe until after election day.
So, many observers of Zimbabwe are easing into settling on waiting to see how democracy plays out on whichever dates are set for national elections. Only subsequent to an appraisal of democracy at elections can substantial action take place in the form of credit transactions.
Events of the global economy should forewarn us against finding satisfaction in this kind of approach! Particularly, note democracy’s role in the relationship between debtor and creditor nations through the intermediation of IFIs or private funds.
As debtor nations, especially the Africa Union, we unfortunately perceive election day democracy as qualification, and justification, to submit loan application forms to IFIs.
“See, we had free and fair elections; why should you not consider our loan application, Mr. IFI banker?”
Misguided by this deficient perception, debtor nations then, like Zimbabwe, expend significant amount of energy to prove free and fair elections, and on satisfactory remarks from poll monitors, we demand our formal rights to have loans granted.
This is a very deadly manner of perceiving democracy, and often comes back to bite debtors nation themselves.
Consider that all nations within Sub-Saharan Africa, except just one, as it stands today are below investment grade as per credit ratings. More simply, the entire Sub-Saharan Africa, except one nation, is not creditworthy.
Perpetual debt cycles have been evident for years and remain a prominent ailment. The question should be asked: are debtor countries naturally less responsible with money? I’d proffer that it is our lack of every day institutional democracy that keeps us in debt.
The global debt outlook, particularly to IFIs, is a democratic problem. It is not that as debtor nations we are innately more irresponsible with money, but rather we do not have respective stakeholders exercising their democratic rights to that money on a daily basis.
Countries with poor credit ratings typically show a low Democracy Index
The proposition here is that debtor nations have a lower quality of institutional democracy than creditor nations. Empirically, one can reference data such as that of the Economist Intelligence Unit’s (EIU) index of democracy. Nations that typically score high on institutional democracy indices have satisfactory debt outlooks, while nations that score low on institutional democracy indices face huge debt burdens.
Thus, debtor nations like Zimbabwe should expand our conception of democracy from merely electoral democracy that convinces creditors of our capacity for free and fair elections, to daily institutional democracy that results in sound management of credit. This is what separates debtor nations and creditor nations; the quality of every day institutional democracy responsible for what happens to money in our economy.
Revert back to the relationship between debtor nations and IFIs. We have membership rights in IFIs as our governments have vested shareholding. So as far as we show credible democratic polls, we often press for our rights to access credit.
Regrettably, this shallow attachment of democracy to harmonised elections does not enhance our credit utility and effectiveness. Once IFIs concede that elections are free and fair, debtor nations hastily take loans. We often speak of skeptically of tying ourselves to loan terms and conditions that hurt our economies, but really, whether or not the loan terms and conditions are stringent is a secondary matter. Without institutional democracy that achieves utility and effectiveness of credit, even the most generous and accommodative credit can grow into huge burdens.
Indeed, the greatest deterrent and protection to credit defaults and growing obligations is institutional democracy — a higher quality democracy than simply free and fair elections.
Practical examples of institutional democracy include effective Parliamentary Portfolio Committees that have quality information oversight and fluidity between stakeholders. It includes matters such as disclosure in public debt assumption, such as recent ZESA Assumption Bill. Institutional democracy involves transparency in public entity reforms in terms of their organizational structuring and procurement.
Taken in context, these are more sustainable and impactful democratic reforms relevant to credit utility and effectiveness than the impending election season. Of course, the two are not mutually exclusive, but on our credit appeals to IFIs and global funds, the new administration must find its own confidence in enhancing our institutional democracy, and not be beholden to the pressures of just free and fair elections. We need a higher quality of democracy than that. Otherwise, we are merely seeking acceptance into more money that we cannot be responsible for!