ZIMBABWE has over the past 10 years accumulated a domestic and foreign debt which it has failed to repay.
This has prompted international lenders such as the International Monetary Fund and the World Bank to cease extending any loans to Zimbabwe.
Government has blamed the increase of the debt on a number of factors that includeÂ sanctions andÂ poor rains which have resulted in a decline in agricultural output. Economic analysts have however blamed governmentâ€™s continued appetite for borrowing when there is little production.
As of December 31 domestic debt was pegged at $56,9 sextillion ($56,9 trillion) while external debt is US$4,69 billion.
Businessdigest senior business reporter Paul Nyakazeya (PN) this week spoke to analyst Alex Magaisa (AM) from Corporate and Financial Services, Kent Law School at the University of Kent at Canterbury about the countryâ€™s debt.
PN:Â What really has been causing this significant rise in domestic and external debt?
AM: The golden rule of debt management is that a government, like any ordinary person, should learn to live within its means. If an individual cannot afford to live in Borrowdale Brooke, he should find comfort in his humble station in Warren Park. If however, he chooses to borrow money so that he can take up residence in leafy Borrowdale Brooke, he cannot complain if the debt spirals out of control. This is where the government is at present.
For too long it has lived beyond its means â€” it is large; it fancies luxury but does not produce enough to sustain its voracious appetite. That is why some of this appetite has had to be funded by printing money, because the government itself is a bad debtor and no one outside the country wants to extend any more credit to it.
PN: Under the current economic environment can government live within its means, especially when all major sectors of the economy are not producing?
AM: Itâ€™s like a credit-card holder who borrows up to the maximum possible limit:Â he might go back to the bank and ask for more credit but at some point the bank will say no more credit because the debt is just piling up and you are not producing enough to make sufficient repayments.
An individual in such cases would be stuck, without any other source to fund his spending habits. But governments â€” especially our government â€” have the luxury of printing money to deal with those situations! So in my view, there are a number of critical things that the new government ought to consider:
PN: If you were asked to come up with measures to control government debt what would you suggest?
AM: Firstly, reduce the size of government, which is probably unlikely in the short-term given the enormous size of the cabinet that has resulted from the Global Political Agreement. You can see there that economic sense gave way to political expediency, which is unfortunate;
Secondly, government needs to cut down on spending and try to live within its means. There is no point trying to be what you are not. Accept the reality that we are poor and impecunious at this stage and we cannot afford to spend more than we are producing.
Thirdly, government must create conditions to promote economic efficiency and productivity. This will raise the level of exports and therefore revenues for the country, which can be used to repay some of the debt and fund development. This means the government must try to encourage entrepreneurship, to welcome its sons and daughters who wish to invest in the country and also to welcome foreigners who wish to invest.
Most importantly, government needs to carry out an honest assessment of our sources of wealth such as agriculture, mining, tourism and ensure that the most talented and most committed are given the opportunities to exploit the resources regardless of colour, race, religion, tribe or political allegiance.
Lastly, government needs to mend relations with foreign creditors, including bodies like the IMF who have previously given balance of payments support. There is no doubt that Zimbabwe has suffered immensely from being cut off and literally becoming a desolate desert island in global economic terms.
But you have to address the causes of this ostracisation; things like the breakdown of the rule of law, the bad credit history and poor image need to be sorted out first to regain the confidence of those who might support us, either by providing the balance of payments support, loan repayment holidays or even cancellation of debt.