eBusiness Weekly
Martin Kadzere
Zimbabwe needs to improve the security of tenure on farmland and to align the Indigenisation Act to the empowerment policy pronounced by the President last year to attract new foreign capital and help make the country’s debt sustainable.
Such issues have remained critical to ensure Zimbabwe’s debt sustainability before it can be considered for new disbursements by global lenders.
The government moved in 2006 to offer 99-year land leases and permits to some farmers, but some banks have consistently refused to recognize these as security for loans.
On the hand, the government is yet to align the Indigenisation Act to policy clarification pronounced by the President over the interpretation of the empowerment law.
There is no monetary costs in implementing them but yet the cost of not implementing them is horrendous. We need investment and exports flows for us to repay the loans. A poor investment climate does not attract capital.
Critics say the ability by the country to access new debt should—on the basis of prudence — be hinged on the ability by the government to generate sustainable positive net cash flows to service the continuing debt obligations over the life of the debt.
By implication issues relating to the government revenue and expenditure models become very critical in lenders making the decision to extend fresh credit to the government.
As such, all aspects that relate on how government could bolster its revenues, including but not limited to productivity on land, the ease of doing business, a stable and investor-friendly macro-economic environment become important considerations.
Equally, the government expenditure model, which has largely been excessively consumptive over the last two decades, needs to be revamped to ensure it does not perennially run destabilizing budget deficits. “Indeed it’s the huge budget deficits and their subsequent financing mechanisms that have, over the years, been a source of high inflation, unstable exchange rates and depletion of foreign exchange reserves,” managing director of Oxlink Capital Brains Muchemwa told Business Weekly.
“On account of the foregoing, government has unfortunately failed to service its debt obligations with bilateral and multi-lateral institutions over the years,” he added.
Actual expenditure outturn in the first half of 2017 was $2,63 billion against a target $2 billion.
A budget deficit of $535 million was recorded and was financed largely through domestic borrowing.
The deficit is however understated as the Minister of Finance, in his annual budget review for 2016 and 2017 outlook said the government had accumulated $1,1 billion worth of supplier’s and service providers arrears to a number of domestic creditors who delivered goods and services to various line ministries and departments.
Zimbabwe is in debt distress and as at March 31, 2017, the country’s public debt stood at $11,6 billion or 82 percent of the gross domestic product, of which $7,5 billion or 53 percent of the GDP is external debt while $4.3 billion, representing (30 percent of GDP) is domestic debt. Of the $7,5 billion external debt, $5,2 billion is in arrears.
The external debt of the country has increased in the second quarter due to interest payments.
On the other hand, the domestic debt has also increased due to the continued issuance of treasury bonds to finance government expenditure. Government has been increasing its reliance on the domestic market to finance the budget deficit and the TBs worth $2,5 billion, are currently on the market. The stock of public debt is violating provisions of the Debt Management Act which provides that outstanding Government debt as a ratio of GDP should not exceed 70 percent at the end of any fiscal year.
Zimbabwe is in the process of implementing a debt plan agreed on with global lenders in Lima, Peru in 2015, which requires the country to implement robust economic reforms.
Under the deal struck at the World Bank and International Monetary Fund spring meetings, Zimbabwe made a commitment to clear its arrears with the global lenders; IMF $110 million, WB $1,15 billion and the African Development Bank $601 million by April last year. Only arrears to the IMF have so far been cleared.
