Domestic debt soars again

Ngoni Chanakira

THE country’s domestic debt, which had begun to decrease, is now up again moving from $329 billion in March to $354,1 billion as of April this year.



na, Arial, Helvetica, sans-serif”>The latest figures made available by the Reserve Bank of Zimbabwe (RBZ) this week show that the country’s domestic debt has increased from $329 099 000 000 on March 21 to $354 143 300 000 on April 11.


During the same period the RBZ advances to government decreased from $28,8 billion to $16,4 billion.


Outgoing RBZ governor Leonard Tsumba has been heavily criticised for allowing government to continue excessive borrowing from the exchequer, disrupting the country’s economic recovery programme.


Analysts said with the recent increase in inflation from 269,2% to 300,1% as well as the recent salary increments awarded to civil servants, the debt would increase even further.


The RBZ said: “Domestic and foreign financial savings are a major source of financing. These are critical in determining the level and rate of investment and economic growth. The experience of the developed world and the newly industrialised countries demonstrates that low and stable inflation is crucial for raising savings in order to realise meaningful investment.”


The bank said in most developing countries however low domestic savings had tendered to be augmented by foreign resource flows – grants, portfolio and Foreign Direct Investment (FDI), as well as by long-term capital.


The central bank said regrettably, in Zimbabwe, both domestic and foreign savings had been declining since 1995.


“The country’s domestic savings ratio fell from 20,8% of gross domestic product (GDP) in 1995, to 9% in 2000, while the capital account balance deteriorated from a surplus of 7,1% of GDP in 1995, to a deficit of 6,5% in 2002,” the RBZ said.


It said the significant decline in domestic and foreign savings occurred against the background of high inflation, negative real interest rates and unfavourable terms of trade.


The bank said though nominal domestic savings rose from $22 billion in 1995 to $239,8 billion in 2002, in real terms, this represents a decline from a growth of 7,4% to minus 9,1%.


“The capital account – traditionally the surplus account of the country’s balance of payments – has seen a net resource outflows since 2000,” the RBZ said.


“This has been reflected in falling Foreign Direct Investment, portfolio flows and long-term capital, against the backdrop of reduced external support and a worsening current account balance.”


The bank said the decline in domestic and foreign savings had adversely affected investment and industrial capacity utilisation, leading to a sharp contraction in domestic output.


“This has been exacerbated by high inflation, unfavourable terms of trade and foreign exchange shortages,” the RBZ said.