HomeBusinessZimbabwe debt to hit US$8,6b

Zimbabwe debt to hit US$8,6b

THE International Monetary Fund (IMF) sees Zimbabwe’s domestic and foreign debt increasing by US$1 billion to US$8,6 billion by year-end.

The debt will be close to thrice the Gross Domestic Product (GDP) estimated at US$3,5 billion.
The huge debt — which will result in high future taxes if the country’s major sectors of the economy do not start performing against a background of inadequate foreign aid, investment and lack of creditworthiness — is made up of US$7,6 billion and US$1 billion in foreign and domestic debt.
With a debt of US$8,6 billion and an estimated population of 14 million, it means every Zimbabwean would now owe local and foreign creditors US$614.

According to the Consumer Council of Zimbabwe, a low income urban family of six needs US$481 to survive the whole month.

On average most Zimbabweans live on US$5 daily, which translates to US$150 a month.
Commenting on the projections, economist Brains Muchemwa told businessdigest this week said it was important to consider the ability of government to generate future revenue to offset this huge debt.
“The ability of the Zimbabwean government to service its debt is a function of the vibrancy of its revenue model, implying therefore that the economy must keep growing, broadening the tax base whilst a rational civil service reform needs to be implemented to conserve cash and improve the debt servicing,’ he said.

Muchemwa said disposal and commercialisation of loss-making parastatals needs to be prioritised, and equally, the tightly regulated industries such as the telecommunications needed to be further liberalised so that government generates more revenue from taxation.

“The stone-age mentality of having tightly regulated industries for no-one’s benefit except the operators is retrogressive and should not be government policy,” he said.

Last year, Finance minister Tendai Biti said Zimbabwe required US$8,5 billion in three years to fund economic recovery after a decade of recession. The IMF said while positive signals showing prospects for recovery had been registered since 2009, growth prospects remained bleak because Zimbabwe remained entangled in a plethora of constraints requiring decisive actions.

“The outlook for 2010 is highly uncertain,” the IMF said on Tuesday. “Zimbabwe is in debt distress. Sound policies and good governance will be critical to pave way for eventual debt relief and access to donor financing… directors strongly encouraged authorities to improve their co-operation with the Fund on policies and payments.”

The IMF added: “Large budgetary wage increases crowding out growth-oriented expenditures, a significant slowdown in private capital inflows because of increased uncertainties about the indigenisation process, and strong credit growth have intensified external and banking system vulnerabilities.”

Lance Mambondiani, an investment executive at Coronation Financial, this week said the total debt as a percentage of GDP is more than 150% and the Net Present Value (NPV) of our debt to export is over 250%, meaning the debt was two and half times greater than the total value of the country’s exports.

“Based on these figures alone, whichever superlative you choose, the country is poor and highly indebted and requires the support of the international community,” he said.

Mambondiani said it is almost unpalatable that at a critical time of stabilisation, the choice was between servicing our foreign debt and feeding the people, rebuilding infrastructure, paying civil servants, putting more medicines in hospitals or restoring industry and agricultural capacity.

He said re-integrating Zimbabwe into the world economy must include debt rescheduling either under the Highly Indebted Poor Countries (HIPC) plan or outside the HIPC initiative, which will involve a formal deferment of debt service payments and the application of new and extended maturities to the deferred amount until the economic conditions in the country have improved.

“If we are to compare the total debt to revenue figures averaging US$60 million and assuming that government had no other expenditure except pay the debt, it would still take the country more than a decade to fully service its external debt,” Mambondiani said.
Zimbabwe Coalition on Debt and Development chairperson Rutendo Hadebe said there was need for a comprehensive audit of the debt rather than the country’s participation in the HIPC Initiative.

“Zimbabwe should find other solutions before adopting HIPC. Zimbabwe could qualify as a HIPC (but) measures such as mandatory privatisation of state enterprises, adopting an economic adjustment programme and other such pre-requisites could be more harmful to the economy,” he said.

Hadebe said the HIPC initiative is a long, fraught process which is tied to a whole range of sometimes controversial macroeconomic policy conditions.
The average time for completion of the programme has been six to seven years, which means debt cancellation takes a long time.
“Zimbabwe will also have to meet its external debt service obligations as a supposed sign of goodwill once it starts the initiative which will mean that ironically, there will be a significant increase in the external debt service burden over the short-term,” he said.

Paul Nyakazeya

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