THE country’s domestic debt has ballooned to $12,5 trillion as at October 31 from $8,1 trillion in September, a 54,3 % rise.
=justify>Presenting the 2008 national budget in parliament yesterday, the Minister of Finance Samuel Mumbengegwi said continued reliance on domestic financial borrowings was the reason behind the continued increase in the domestic debt.
He also revealed that the country’s external debt stood at US$4,1 billion of which external arrears were US$2,7 billion.
“Increased reliance on domestic financial borrowings had seen total domestic debt rise significantly, especially against the background of high nominal interest rates. Reflecting this, total domestic debt has progressively risen to the current levels of $12,5 million as at end of October,” Mumbengegwi said.
The figures have a huge bearing on the returns that investors will be getting from the money market.
The market was bound to continue issuing investors with negative returns in the short-tem to minimise the harmful effects of the huge interest cost component on the debt figures.
The Reserve bank has since January said interest rates which constitutes over 90% of the country’s domestic debt would be a burden on the fiscus if government continues to rely on domestic borrowing.
The bank said increased borrowing had tied up a high percentage of the nation’s savings.
Analysts said the domestic debt would continue to soar due to the necessity to fund various imports such as electricity, grain and fuel.
“We have managed to restructure our domestic debt profile, which though mainly still comprised of short term debt profile, which, tough still comprised of short term debt is now constituted of 35,8% instrument of three years maturity with the remaining 64,2% being 365 day treasury bills,” Mumbengegwi said.
Indications are that the restructuring exercise was likely to be unsuccessful due to the market’s lack of appetite for long-term investments.
It was evident that the solvency of government was already seriously compromised by the current interest rates, and technically government finances will not be better with even a 2% rise in interest rates
Mumbengegwi said the country was experiencing deficits between foreign currency inflow and outflows.
“The situation was reflective of constraints being faced in the economy because of sanctions, drought and sagging national ego or mindset,” he said.
The debt stock was likely to rise further on increased borrowing by government to finance unbudgeted expenditure and the need to meet its projection of a 4% growth in the economy.