ZIMBABWE’S domestic debt rose 1,3 million % inside three weeks to $1 trillion on August 8 from $79,6 million recorded on July 15, official figures revealed this week.
The rise in government domestic debt levels, which is now being kept secret by the Reserve Bank, was sparked by huge interest payments which account for $822 billion of the total debt.
The debt has been ballooning because of the Reserve Bank’s advances to government, largely for the March 29 and June 27 presidential elections, agricultural mechanisation programme and food imports.
“The stock of government domestic debt by mid July stood at $1,064 trillion, reflecting an increase of 1,3 million from $79,6 million, according to official figures obtained from the Reserve Bank on Wednesday.
With government’s continued reliance on borrowing from the local market, domestic debt is estimated to be nearing $100 trillion.
The mismatch between fiscal revenues and expenditures also opened a significant funding gap resulting in government utilising the overdraft window at the Reserve Bank, while at the same time borrowing from the domestic debt.
According to the Reserve Bank, as of July 31 cumulatively, since the beginning of the year government raised 365-day treasury bills amounting to $$21,1 of which 995 or $21 million was raised between April and July.
The RBZ advances to government have over the past five years accounted for about 80% of total debt, a situation bank economists say is evidence that government was broke and had no other source of revenue other than the domestic market.
Figures from the RBZ show that the solvency of government was already seriously compromised with the current interest rates, and technically government finances will not be better off with even a 1% rise in interest rates.
The increasing government debt stock raised fresh fears of renewed turbulence in the crisis-strapped economy, battling with high inflation currently at 231 million %.
The surge in domestic debt was the result of high interests on the market which were in line with the inflation rate.
Government has also been forced to rely on domestic borrowings because their tax revenue base has dwindled because of company closures which have led to retrenchments. This means that in real terms, the government is collecting less revenue through corporate and income tax.
During the last monetary policy in July, Gono said the Reserve Bank had remained the major holder of government domestic debt at 95% of the total amount.
Analysts say the debt stock was likely to rise further on increased borrowing by government to finance the import of wheat and maize, electricity, civil servants’ salaries and sustain the Basic Commodities Supply Side Intervention (Baccosi).
“Commercial banks accounted for about 99% of the monetary banking sector’s holding of domestic debt. This is attributed mainly to banks’ active participation in Open Market Operations,” said the Reserve Bank.
The major effects of rising government debt would be an escalation of the inflationary rate because of increased recourse to the domestic market for funding.
With inflation at 231 million % government’s huge appetite for cash is also likely to spur increased money printing, pushing money supply growth upwards.
The fact that Zimbabwe has no access to international capital has only aggravated the situation.
“The figure has a huge bearing on the returns that investors will be getting from the money market. The money market is bound to continue issuing investors with negative returns in the short-term to minimise the harmful effects of the huge interest cost component on the debt figure,” an economist with the central bank told businessdigest.
Meanwhile the Reserve Bank has kept the lid on the money supply (M3) figures. The official figure to date is 420 867,4% for April. Economic analysts this week said the figure could be nearing 150 million % after Gono introduced 21 new denomination notes this year alone.
Annual broad money supply growth has maintained an upward trend since November 2003 reflecting the inevitable Reserve Bank’s intervention to stimulate the supply side of the economy in the absence of external support.
Official figures from the Reserve Bank show that on an annual basis domestic credit grew by 482 460,9% for April, largely driven by growth in credit to the private sector – 412 919,7%, credit to government – 734 013,7%, and claims on public enterprises – 216 066,7%. The Reserve
Bank has published the latest figures.
Credit to government has largely been from domestic banks because of the drying up of external lines. Lenders in the domestic market no longer have the capacity to meet the needs of government.
By Paul NyakazeyaÂ