Borrowing craze bloats domestic debt

Shakeman Mugari



NEWS last week that Zimbabwe’s domestic debt had doubled in half a month was the clearest sign yet that government continues to spend beyond its me

ans and confirms its role as the major driver of inflation through printing of money to fund the debt.


Domestic debt this month doubled in a space of less than 15 days to reach its highest peak of $127 billion, a serious indictment of a government which has consistently promised to cut its excessive expenditure.


According to Reserve Bank figures released last week, government debt opened the month of September at $64 billion, reaching $97 billion in seven days before jumping to $127 billion by mid-month.


About $45 billion of the debt is the principal amount of treasury bills that have been floated while $81 billion (about 67% of total debt) is in interest that government will have to pay.


The debt translates to 15% of nominal gross domestic product — the country’s total wealth of $840 billion. Put differently, by borrowing excessively government is eating into the national pie.


So far there are no signs that government will ease its foot on the pedal of borrowing any time soon. If anything, the debt crisis will get worse.


Events in the past six months indicate government is not, even though it claims otherwise, committed to cutting down its expenditure. It remains tethered to the irrational notion that the flow of time will inevitably cure such skewed practices.


Over the past six months President Robert Mugabe’s government has come up with policies and activities that can only drain the fiscus and force the state to borrow more to fund them. They show that reducing expenditure is certainly not a priority in the government.


The government has overrun its budget targets to force a supplementary budget of $327 billion, an amount that far exceeds the revenue that it has generated.


The introduction of the senate, the purchase of fighter jets and a new fleet of vehicles for ministries, together with the expensive currency change bear testimony to a government unwilling to live within its means.


All these expenses were not originally budgeted for and so were financed through borrowing that was facilitated by money printing. They were all inconsistent with policy priorities and could therefore have been postponed or avoided altogether.


Economists say it is these irrational policies that have driven the country into a debt trap.


Commentator Eric Bloch said public debt was increasing at an alarming rate because government had resigned itself to running on borrowed money.


“They will continue to borrow because the country is not generating enough revenue to fund its activities. Such a high debt leads to more inflation and is an indication of the poor policies that they have been implementing,” Bloch said.


While government seems unfazed by the surge in domestic debt, experts say the “borrowing craze” has far-reaching consequences on the whole economy especially on the vulnerable groups who are already battling with swingeing inflation and shortages of most basic commodities including food.


Government has no means of raising money other than through taxes and any debt that it acquires will have to be paid by taxpayers as its major source of revenue.


Bloated public debt means government is pushing it citizens into an abysmal debt trap. Apart from the normal debt that every Zimbabwean has acquired in their individual capacities, they also have a national obligation that has been created for them by a government that cannot tame its extravagance.


Calculated on the assumption that Zimbabwe has a population of 13 million, the debt figures mean that each person it this country, including children born today, has a debt of $9 769.


Economic consultant Peter Robinson said the debt made Zimbabweans poorer because government would charge them high taxes to meet its obligations.


Robinson said while in the short-term money would be printed to cover the debt, that expedient would come back to haunt the people of Zimbabwe because it would increase money supply, resulting in even higher inflation.


“The debt affects the poor because if government prints money to fund it this will lead to more inflation. Inflation will not come down for as long as government continues to run the printing machines,” said Robinson.


“High domestic debt, four-digit inflation and high money supply are a characteristic of failed regimes.”


Zimbabwe has had to rely on the local market for funds because it has been isolated from the rest of the world.


The International Monetary Fund (IMF), the World Bank and the Paris Club have refused to give money to Zimbabwe because of its poor economic policies and political risk profile. A very poor human rights record and lack of property rights have compounded things.


International financial isolation has forced Zimbabwe to rely on local borrowing.


That trend, economists say, is crowding out productive private players from the market.


The government has over the past three years become the major player in the money market, taking a significant chunk of funds that key sectors should be using enhance production.


The disaster, according to economist David Mupamhadzi, is that government is borrowing for consumptive purposes and therefore denying funds to other sectors that urgently need money for capital projects.


“Government is crowding out private players who are supposed to borrow for production to drive the economy,” Mupamhadzi said. The debt only adds to the budget deficit that has been widening at an alarming rate.


Government’s debt should certainly not help Zimbabwe’s case when the IMF team comes here for the Article IV Consultations that are now scheduled for early November.


The bloated expenditure, budget deficit, money printing and government borrowing are some of the issues the IMF has advised Zimbabwe to deal with.


Harare has however failed to deal with the problems despite promises to do so.

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