ONE of the biggest headaches accentuated by Covid-19 is Zimbabwe’s debt crisis which makes it difficult for the country to access fresh capital, roll out social safety nets, preserve jobs and stabilise an already rickety economy. After decades of reckless spending, unmitigated corruption and breathtaking economic mismanagement, the chickens are coming home to roost. Debt forgiveness by the powerful creditor nations of the North and the financial institutions they control, would be a welcome relief, although unlikely at this stage.
The authorities put the country’s external public debt at US$8 billion. This appears to be an understated figure, of course. Even though the government essentially robbed its domestic creditors last year through policy gymnastics and sleight of hand, all the objective facts point to a much bigger debt. To be sure, US$8 billion is nothing to thumb one’s nose at. How on earth is this debt going to be paid? Let us look at all the options and see whether any of them are viable.
The first idea would be to seek a funding from international financial institutions. This route may sound reasonable — until you realise that Zimbabwe has defaulted on loan repayments and is therefore considered a bad debtor. Door closed.
A second idea would be to go begging for a bilateral loan. But who would give this country a loan? China, our “all-weather friend”, has made it abundantly clear that an outright economic rescue package — budgetary support — is not in the offing.
Zimbabwe’s less-than-glorious track record in repaying loans does not help matters. Not only that, Chinese officials do not have confidence in the technocratic capacity, organisational discipline and single-mindedness of purpose of Zimbabwean leaders. At one point, they even advised Harare to send ministers and bureaucrats to Beijing on boot camp to learn about the planning, management and execution of crucial projects. China has channelled into this country huge amounts of funding for infrastructural development, but outright budgetary support is unlikely for the above-stated reasons and more. Door closed.
A third idea is for the government to sit around a table with deep-pocketed financiers and hammer out a mechanism for unlocking funding through the mortgaging of precious minerals.
This has been done before, in piecemeal fashion. The major complication with this approach is that Zimbabwe does not have a good reputation for accountable and efficient natural resource management. You do not have to look further than the Chiadzwa diamond scandal for the evidence. Besides, a lot of the high-end sub-soil assets have already been mortgaged off. Resource exploitation is anchored on solid principles of property rights and contract law — and Zimbabwe ranks lowly when it comes to those indices. The idea of mortgaging off minerals is fraught with complications, not least the fact that viable commodity prices are not assured in a post-Covid world.
What is to be done? Well, it has to be a two-pronged plan: the government must take decisive steps towards negotiating with creditors the restructuring of external debt, while implementing the necessary reforms that will usher in comprehensive economic, social and political stability.