In an analysis of the US$4 billion budget for this year, African Development Bank (AfDB) said that money allocated to energy (1, 2% of the budget) and water and sanitation (2, 8%) was inadequate due to problems faced by the sectors.
It said the low funding demonstrates the need to encourage private sector investment in these sectors by making sure tariffs are set at cost recovery levels.
“Furthermore, the need for Zimbabwe to find a way of resolving its external debt and arrears situation is critical,” AfDB said.
“The needed investments are simply not going to materialise without addressing this important issue.”
Zimbabwe’s external debt is over US$8 billion and has been termed unsustainable until 2029 by a consultant engaged by government three years ago.
Despite promising to adopt a hybrid model that uses traditional methods and resources pledging to clear the debt, Zimbabwe has not moved an inch, mirroring the problems in the inclusive government where consultations can take ages due to a polarised environment.
The delay in clearing the debt is coming at a huge cost to the country as it cannot access lines of credit to help rebuild the economy devastated by a decade of recession which was only halted with the creation of a unity government in 2009.
For instance, there is US$93,1 million which has been escrowed since 2009 as Zimbabwe still owes the International Monetary Fund. The money was part of a global rescue package given to members to shore their reserves in the wake of the global financial crisis.
The huge debt has meant that the country can only access technical assistance from bilateral and multilateral financial institutions.
The revelations by AfDB come at a time government has been looking for investments to drive the economic growth and has promised to put in place reforms to lure investors.
The reforms, which include the conclusion as well as negotiating for new Bilateral Investment Promotion and Protection Agreements, are designed to provide a favourable environment for investors and get a bigger chunk in terms of the global Foreign Direct Investment (FDI) inflows.
FDI inflows into the country were US$105 million in 2010. Government has identified FDI as one of the engines of economic growth under the Medium Term Plan (MTP).
According to the MTP unveiled last year government wants investment to contribute 20% of the Gross Domestic Product in 2015 from the current 4%.
Analysts fear the indigenisation legislation would scare away investors as principals in the inclusive government are not singing from the same page.