ZIMBABWE’S total external debt was US$6,929 billion by December 31 2010, representing 103% of the country’s Gross Domestic Product (GDP) — a level which is above the international debt sustainability of 60% — figures from the Reserve Bank of Zimbabwe show.
This means with an estimated population of 14 million, Zimbabweans each owe local and financial institutions US$495 million.
The huge debt which will result in high future taxes if the country’s major sectors of the economy do not increase their operating capacity against a background of inadequate foreign aid, investment and lack of creditworthiness means even a child born today will owe foreign and local institutions an amount above US$300.
In his monetary policy made available a fortnight ago, Reserve Bank governor Gideon Gono said as at December 31 2010, total external debt stock amounted to US$6,929 billion, representing 103% of GDP. “The bulk of the country’s external debt is owed to multilateral creditors which account for 36% of the country’s total debt,” he said.
“Bilateral and commercial creditors are owed 33% and 31%, respectively. Central government remains the largest debtor at 57% while parastatals and the private sector owe 35% and 8%, respectively,” Gono said.
Economic analysts said the country’s debt could have been under control had parliament conducted debt audits more often.
Commenting on the projections, economist Brains Muchemwa said it was important to consider the ability of government to generate future revenue to offset this debt.
“The ability of the Zimbabwean government to service its debt is a function of the vibrancy of its revenue model, implying therefore that the economy must keep growing, broadening the tax base whilst a rational civil service reform needs to be implemented to conserve cash and improve the debt servicing,” he said.
Muchemwa said disposal and commercialisation of loss-making parastatals needs to be prioritised, and equally, the tightly regulated industries such as telecommunications needed to be further liberalised so that government generates more revenue from taxation.
“The stone-age mentality of having tightly regulated industries for no-one’s benefit except the operators is retrogressive and should not be government policy,” he said.
The Zimbabwean government is said to be divided along political lines on how to control the country’s debt. Indications suggest a massive chasm in the political hierarchy over Finance minister Tendai Biti’s recommendations to apply for the Highly Indebted Poor Country (HIPC) status.
Some Zanu PF ministers are reportedly determined to oppose the move, on grounds that doing so would “open the floodgates to foreign interference”, not just in Zimbabwe’s economic affairs, but also in its politics. They feel that an HIPC initiative “would be used by Western countries as an instrument of regime change”.
Biti strongly contends that HIPC status is the best option for Zimbabwe, stating that the options do not accord Zimbabwe a “holistic and viable approach to its debt and arrears problems” significantly diminishing the extensive current restraints upon economic growth and poverty reduction.
But what are the advantages and disadvantages of Zimbabwe falling under HIPC?
Economic analyst, Sonny Mabheju told businessdigest that the HIPC programme required a number of conditions to be fulfilled, largely similar to those attached to International Monetary Fund (IMF) and World Bank loans, which require “structural adjustments and at times including privatisation of public entities like water and electricity”.
“The country must (also) maintain macroeconomic stability and has to implement satisfactory poverty reduction strategies for at least one year,” Mabheju said.
Economist David Mupamhadzi said the issue of the country’s external debt was central to the sustained recovery of the economy. He said the government of Zimbabwe should come up with a clear arrears clearance strategy since this was “one of the first steps towards the reengagement with the international community”.
“The HIPC route is one option which the government could adopt, and this approach will be widely supported by the international finance institutions. Taking this option will enable the government to make huge debt service savings, and this will provide the government with an opportunity to redirect resources to other critical areas of the economy.
“For example in January 2010, the Republic of Congo, reached the completion stage of the HIPC initiative, and they generated a total debt service savings of US$1,9 billion.
“Furthermore once a country adopts a credible debt clearance strategy, this will also improve the country’s risk profile to both domestic and international investors,” Mupamhadzi told businessdigest.