Domestic Debt Skyrockets By 17 800%

ZIMBABWE’S domestic debt rose 17 800% inside one month to $179,6 trillion on September 8 from $1 trillion recorded on August 8, creating heavy future taxes official, figures revealed this week.

The rise in government domestic debt levels, which is now being kept secret by the Reserve Bank, was sparked by huge interest payments which account for about 90% of the total debt.

The debt has been ballooning because of the Reserve Bank’s advances to government, largely for the agricultural mechanisation programme and food, fuel and power imports as all major sectors of the economy are reportedly operating below 30%.

“The stock of government domestic debt on September 8 stood at $179,6 trillion, from $1 trillion on August 8,” according to the Reserve Bank on Wednesday.

With government’s continued reliance on borrowing from the local market, domestic debt is estimated to end above 10 quadrillion this year.

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.

The Reserve Bank’s advances to government have over the past five years accounted for about 80% of total debt, a situation bank economists say was evidence that government was broke and had no other source of revenue other than the domestic market.

Figures from the Reserve Bank show that the solvency of government was already seriously compromised with the current interest rates, and technically government finances will not be better off 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 231 million %.

Economists however say the inflation figure was well above.

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 because of company closures which have led to retrenchments. This means that in real terms, the government is collecting less revenue through corporate and income tax.

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).

With inflation at 231 million % government’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 situation.
Meanwhile the Reserve Bank has kept the lid on the money supply (M3) figures.

The official figure to date is 420 867,4% for April. Economic analysts this week said the figure could be nearing 500 million % after Gono introduced 27 new denomination notes this year alone.

Annual broad money supply growth has maintained an upward trend since November 2003 reflecting the inevitable Reserve Bank’s intervention to stimulate the supply side of the economy in the absence of external support.

Official figures from the Reserve Bank show that on an annual basis domestic credit grew by 482 460,9% for April, largely driven by growth in credit to the private sector — 412 919,7%, credit to government — 734 013,7%, and claims on public enterprises — 216 066,7%. The Reserve Bank has not published any latest figures since then.

Credit to government has largely been from domestic banks because of the drying up of external lines. Lenders in the domestic market no longer have the capacity to meet the needs of government.

BY PAUL NYAKAZEYA

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