PROMINENT economist, University of Zimbabwe lecturer Professor Asho Chakravati has dismissed the commonly-held view that Zimbabwe’s debt, estimated at just over US$10,7 billion, is a cause for concern, arguing instead it is manageable and does not pose a major constraint to economic revival.Chakravati says Zimbabwean authorities should worry less about the quantum of the national debt but instead deal with arrears to the multilateral lending institutions as the IMF and World Bank, from whom other lenders take a cue in the suspension of further external support.
“We are not repaying the debt anyway, so it is not an immediate drain on resources, so what?” Chakravati said while addressing the 43rd edition of the Institute of Bankers’ winter banking school in Nyanga last week.
“Zimbabwe’s economic growth is more vulnerable to domestic factors and domestic economic variables rather than the level of the foreign debt.”
Earlier in the week, Finance minister Tendai Biti had told parliament government was already making strides in implementing the Zimbabwe Accelerated Arrears Clearance, Debt and Development Strategy (Zaadds), through accelerated re-engagement with creditors, including multilateral financial institutions — the International Monetary Fund, World Bank and the African Development Bank.
The strategy aims at achieving debt relief and as a result creates opportunities for new financing and normalisation of relations with creditors. Chakravati said it was critical for government to learn to “play the game” according to the rules of international finance.
Zimbabwe needed to follow the example of Zambia which had successfully been funded by the multilateral institutions 20 times over the past decade. Zimbabwe only managed to get funding from the IMF once during the first phase of the Economic Structural Adjustment Programme in the early 1990s.
“Congo had US$8 billion written off recently, Greece has just had US$200 billion written off. We simply need to play the game properly to resolve the country’s debt situation,” Chakravati pointed out.
But he cautioned that if one were to draw from eurozone country experiences, the major worry for Zimbabwe was the unsustainable size of its public sector wage bill. While government debt was currently attractive because it was US dollar-based, Zimbabwe needed to learn from the southern eurozone countries which borrowed at low rates but substantially increased both public and private sector wages.
Chakravati observed this had resulted in the current high levels of social unrest in the economies of Portugal, Italy, Greece and Spain (Pigs).
However, Zimbabwe’s US$10,7 billion debt, which is estimated at about 111% of Gross Domestic Product, was a pittance in the global scheme of things, Chakravati contended.
He gave the example of Greece which in 2010 had debt of US$447 billion (165% of its GDP), and Italy’s debts which represented 310% of GDP of which government borrowings accounted for 129% of GDP, whilst private sector borrowings took up 181% of GDP.
Similarly, Spain had total borrowings that were 335% of GDP, the majority of which was private sector (283%) with government at 72%.
Biti said the principals’ approval of the Zaadds was a clear demonstration of government’s commitment to resolving the country’s external debt challenge, critical for unlocking new financing for some infrastructure projects and social programmes.
Launch of the Zaadds was followed by a High Level Debt Forum hosted by the African Develpment Bank (AfDB) in Tunis on March 23. The forum culminated in the building of consensus among creditors and other stakeholders, including China, over the process of resolving Zimbabwe’s external debt and arrears.
This was followed up through a forum with development partners held on the sidelines of the April 2012 IMF/World Bank Spring meetings in Washington DC, which further confirmed support for the resolution of Zimbabwe’s external indebtedness.
Government will, therefore, be engaging multilateral Institutions, including the IMF and the World Bank, on the necessary measures to implement the Zaadds.
According to the Ministry of Finance, a World Bank/IMF mission had already been in the country over the period June 13-27, focusing on the development of a macroeconomic policy framework in support of inclusive economic growth and the sustainable implementation of the Zaadds. Biti said this would anchor the arrears clearance process and debt relief initiatives through the implementation of sound macro-economic policies.