How government can reduce national debt

LAST week this column addressed the colossal magnitude of Zimbabwe’s national debt.

Eric Bloch

The debt exceeds US$9,9 billion, over and above US$99,1 million of domestic loan debt, as well as considerable outstanding indebtedness of salaries due to civil servants and substantial overdue debt to domestic suppliers.

Moreover, the Reserve Bank of Zimbabwe (RBZ) has an accumulated domestic and international debt exceeding US$1,35 billion.

Containment and progressive reduction of the national debt is a prerequisite for economic recovery, and a prerequisite for government to adequately fund infrastructural development greatly needed by the economy and country.

Last week we focused primarily on a statement by the Minister of Finance, Patrick Chinamasa, stating government intends to establish a new government body to be known as the Zimbabwe Debt Management Office (ZDMO).

That entity’s mandate will be to manage the national debt, and to achieve progressive reduction of the debt. There are two inter-related key actions which will have to be pursued by the ZMDO to fulfill its objectives.

First and foremost is the need for “a massive constraint of the immense expenditures of government”. Pursuant to that objective there must be considerable reduction of the large size of the Zimbabwe cabinet, and of the attendant excessive size of the public service.

However, concurrently with an urgent and vigorous pursuit of these two policies to curb government expenditures, thereby to diminish dependency upon loan funding, there are many other plans that should be initiated by government in order to diminish its dependency upon loan funding, and to cure its inability to counter existing loan indebtedness and many other liabilities. Such actions include:

Intense revival of the economy to achieve considerable growth, in contrast to many years of economic decline and to the extremely minimal growth attained in the first half of 2014.

The greater the size and successes of the economy, the greater will be the revenue flows to the state. Such revenue flows would include direct taxes upon the projects realised by the private sector, and upon the salaries and other emoluments of those employed in the economy — a growth economy stimulating the employment of greater numbers than the case presently.

The state revenues would also be greatly increased by way of indirect taxes such as Value Added Tax (VAT) on increased public expenditures enabled by the greater numbers in employment, thereby generating income which many do not presently enjoy.

Other indirect taxes which would be enhanced by an increasingly active economy include customs and other import duties, transfer duties on greater numbers of property transfers at higher values than present, and diverse other taxes.

Partial, or total, privatisation of parastatals. On the one hand, such disposals by government would result in inflows to the fiscus of capital sums for the fair market values of the parastatals’ infrastructural and other fixed assets, as well as payment for other assets of the entities and, on the other hand, private sector management and technical expertise would result in the presently state-owned, loss-making, enterprises generating taxable profits.

In contrast, presently the majority of parastatals operating under government management are sustain continuous operational losses, thereby yielding no revenue inflows to the state, and frequently necessitating further state capital inflows into the enterprises.

Restructuring of the political and economic environments as would enable Zimbabwe to meet the criteria for international grants, and like funding support such as the Heavily Indebted Poor Countries (HIPC) programmes of the developed first-world countries.

Considerable HIPC is granted to many under-developed and developing countries, provided donors are satisfied the funds will be constructively used for the specific purposes for which they are granted.

Curbing of bribery and corruption within the public sector. The magnitude of such costly impacts upon the fiscus was highlighted when an authoritative, independent auditors’ report a few years ago disclosed that the government public service payroll included thousands of fictitious civil servants, representing almost 20% of the then allegedly employed public servants.

Many private sector suppliers who could provide the state with many of its needs could disclose (if they were not fearful of doing so) the frequency and magnitude of bribes demanded by some in the civil service in order to motivate government sourcing of imports, supplies, and services from such suppliers.

In the case of them willing to accept such bribes, the costs thereof are deviously incorporated into the charges levied on the state by such suppliers.

Similarly, by recourse to bribery and corruption various importers achieve minimisation of customs and import duties, thereby prejudicing the revenue flows to the fiscus.

A marked reduction in the extent of regional and international travel by ministers, permanent secretaries and others within the public service.

State interests necessitate a certain amount of such travel for attendance at meetings of entities such as the United Nations and the African Development Fund, for interaction with other governments for economic promotion and other such objectives and purposes.

However, the populace suspects such travels are excessive in relation to a country with a population of about 12 million, and the entourages are too large.

Intensified audit, and other security measures to curb not only unnecessary expenditures but also many illegitimate expenditures which beneficiate those state-employees who initiate the expenditures, instead of beneficiating the state and the populace.

This is especially so insofar as the extent of allegedly government travels are actually for private purposes, unauthorised misuse and expropriation of state assets ranging from stationary to fuel, private vehicle repairs and maintenance, international telephone calls of a private nature, etc.

These actions are corrupt, very costly for the state and, therefore, the taxpayers, and a contributant to the crippling of the economy.

Were such actions to be taken then the magnitude of Zimbabwe’s national debt would progressively be reduced, which would enable lessening of the considerable taxation burdens presently are imposed upon a populace struggling to survive.