ZIMBABWEâ€™S domestic debt soared by 7 417,5% inside four months to $790,6 quadrillion ($79,6 million new currency) on July 15 from $10,5 quadrillion ($1 500 000) recorded during the first week of April, official figures revealed this week.
The new debt levels mean that with an estimated population of 13 million, every citizen owes $61,2 billion (US$6) to local banks and financial institutions.
“The stock of government domestic debt by mid July stood at $790,6 quadrillion, reflecting an increase of 7 417,5% from $10,5 quadrillion,” Reserve Bank governor, Gideon Gono, said on Wednesday.
Government is also sitting on a US$4 billion foreign debt.
The rise in government domestic debt levels, which over the years was sparked by huge interest payments, has been ballooning due to the Reserve Bankâ€™s advances to government, largely for the March 29 harmonised and June 27 presidential run-off elections.
The mismatch between fiscal revenues and expenditures also opened a significant funding gap resulting in government utilising the overdraft window at the Reserve Bank, while at the same time borrowing from the domestic debt.
“Cumulatively, since the beginning of the year government raised 365-day treasury bills amounting to $211,5 quadrillion ($21 150 000) of which 995 or $210,3 quadrillion ($ 21 030 000) was raised between April and July,” Gono said.
The RBZ advances to government have over the past five years accounted for about 80% of total debt, a situation bank economists say is evidence that government was broke and had no other source of revenue than the domestic market.
Figures from the RBZ show that the solvency of government was already seriously compromised with the current interest rates, and technically government finances will not be better with even a 1% rise in interest rates.
The increasing government debt stock raised fresh fears of renewed turbulence in the crisis-strapped economy, battling with high inflation currently at 2,2 million percent.
The surge in domestic debt was the result of high interests on the market which were in line with the inflation rate.
Government has also been forced to rely on domestic borrowings because their tax revenue base has dwindled due to company closures which have led to retrenchments. This means that in real terms, the government is collecting less revenue through corporate and income tax.
“The monetary sector remained the major holder of government domestic debt at 95% or $751,5 quadrillion, ($75 150 000),” Gono said.
Analysts say the debt stock was likely to rise further on increased borrowing by government to finance the import of wheat and maize, electricity, civil servants salaries and sustain the Basic Commodities Supply Side Intervention (Baccosi).
“Commercial banks accounted for about $750,7 quadrillion ($750 700 000) or 99% of the monetary banking sectorâ€™s holding of domestic debt. This is attributed mainly to bankâ€™s active participation in Open Market Operations,” said Gono.
The major effects of rising government debt would be an escalation of the inflationary rate due to increased recourse to the domestic market for funding.
With inflation at 2 200 000%, the governmentâ€™s huge appetite for cash is also likely to spur increased money printing, pushing money supply growth upwards.
The fact that Zimbabwe has no access to international capital has only aggravated the worse.
“The figure has a huge bearing on the returns that investors will be getting from the money market. The money market is bound to continue issuing investors with negative returns in the short-term to minimise the harmful effects of the huge interest cost component on the debt figure,” an economist with the central bank told businessdigest.
Money supply (M3) growth continued on an upward trend, increasing to a new record of 420 867,4% in April from the December figure of 64 113% it also emerged this week.
According the RBZ annual broad money supply growth has maintained an upward trend reflecting the inevitable Reserve Bankâ€™s intervention to stimulate the supply side of the economy in the absence of external support.
“Resultantly, broad money supply growth increased from 64 113% in December last year to 420 867,4% in April,” the bank said.
Money supply is the total supply of money in circulation in a given countryâ€™s economy at a given time. It is considered an important instrument for controlling inflation.
The continuous rise in money supply would further trigger inflation.
Economists said the money supply figure would be over 600 000 percent by August, due to expansionary fiscal and monetary policies being implemented by the government and the central bank.
On an annual basis domestic credit grew by 482 460,9% in April, largely driven by growth in credit to the private sector â€” 412 919,7%, credit to government â€” 734 013,7% and claims on public enterprises â€” 216 066,7%.
“Credit to government has largely been from domestic banks due to the drying up of external lines.
The bank said inflation had led to an increase in cash holdings for day to day transactions. Resultantly on an annual basis, currency in circulation grew further fueling inflationary pressures in the economy.
Economic commentator, John Robertson, said lenders in the domestic market no longer had the capacity to meet the needs of government.
“Government has slowly been pinching away the nationâ€™s savings through very low interest rates, well below inflation,” Robertson said.
“They are their own victims. No one has enough money to meet their borrowing needs,” he said.
By Paul Nyakazeya