HomeOpinionUnderstanding public debt distress

Understanding public debt distress

Yollander Millin Environment Economist
The concept of public debt and public debt distress is one that affects each and every household, and yet the general public often gets lost in the terms that are employed when addressing the issue.

This article seeks to cultivate a citizen understanding of public debt, public debt distress and how it affects day-to-day living in the context of Zimbabwe.

Debt itself is money that is owed or that is due to be paid back.

When one falls on hard times, they may need to borrow some money from family, friends or from the bank just to keep afloat.

Once you set out the terms of repayment and you receive the money, that means you are now in debt.

When you think of it, there is nothing wrong with this arrangement.

You acquire the money you need to solve a pressing financial need, and you make sure that before or on the day you agreed upon, you pay it back.

In a situation where you feel you won’t be able to pay back the debt, and you start borrowing from other people, starting with family members, going to friends and to other people who may not be close to you to offset other debts you eventually get caught up in a web.

You take from your aunt to pay what you took from your grandparents, then you take from your parents to cover what you took from your cousin, then from your neighbour to pay back what you owe your aunt and from the church to pay back the shop-owner or the loan shark.

It just gets to a point where you just owe so many people so much money, and no one is willing to give you anymore money.

This is where we say you are now in debt distress.

Debt distress therefore is a situation in which one has so much debt that continuing to operate becomes difficult.

Similarly, this could happen at national level.

A country may feel the need to borrow in order to ensure the smooth operation of national projects.

As already indicated, debt contraction is not a bad thing as it relieves financing pressure from the citizens.

For example, to provide capital needed to finance development projects like opening up industries, it would be a burden to the citizens if taxes are used, and it would be much better to borrow the money needed and open up the industries while ensuring that they will generate enough output to pay back the debt when it is due.

In Zimbabwe, the low domestic revenue in the midst of high gross financing needs has over the years caused the acute acceleration of borrowing from domestic and external sources to finance development expenditure.

This simply means, the money that the country has been generating on its own has been so little that it could not cover the many needs that the country has.

This has forced Zimbabwe to increase borrowing from stakeholders within the country, like companies and individuals (these are like the family members), and from those who are outside like other countries and money lending institutions like the African Development Bank and the IMF, (these are the friends and other people we are not related to).

The rate at which Zimbabwe accumulated debt, pushed it into a debt distress situation.

The failure to meet debt repayment conditions forced us to try and borrow from others to repay the existing debts, while also we were trying to finance current operational costs.

The pressure ultimately suffocated economic development, making borrowing unsustainable and at the same time compromising the social safety of the citizens.

When the country is struggling with debt, providing for the citizens becomes hard.

If we go back to the home setup we began with, when you owe so many people and you are caught up in a web of debt, you will find that even if you are working and earning a wage or salary, you will not be able to buy food in the house, or pay rent or provide for your family’s needs as you try and cover the most pressing demands of repayment from the pool of people you owe.

The country also gets into the same situation.

It ends up failing to provide for the basic necessities of the people.

There is no money for hospitals and medical care, no investment in food security, no infrastructure, poor education services and so much more.

The provision of what we call public services becomes compromised.

More and more people become vulnerable and succumb to poverty.

Women and children often suffer the most because they are the ones who need and use the public services.

For example, there are more women and children who use the public transport system than men, women are the ones who use water the most because of biology and because of the multiple household chores that they do.

Being in debt distress therefore means the citizens of Zimbabwe fail to enjoy the privilege of access to constitutional provisions.

This, however, has another dimension to it, as we will find out as we go along that it’s not everyone who suffers this fate, some suffer more than others as inequalities rise, an unfairness in the distribution of the available resources, also as a result of being in debt distress.

What factors push us into debt distress?
Poor priorities.

When we fail to assess our needs and if it really calls for us to borrow.

Before we get ourselves into debt, we need to ask ourselves if the situation is dire or if we can compromise for a bit just to avoid borrowing.

Misappropriation of funds.
We need to have financial discipline enough to ensure that the money serves its intended purpose.

If we borrow money to capitalise industrial development but use the money to purchase fancy vehicles, we may not be able to generate the money needed to pay back the debt and this will force us to want to keep on borrowing and end up in distress.

Borrowed money should be used for the intended purpose.

Lack of proper consultation.
It is always important to consult all the people that will benefit from the debt, and also carry the mandate of ensuring that the debt is paid back in time, or who will be affected by the debt.

At national level, the decision to borrow should be made after consultation in parliament.

Members of Parliament are elected by the people and therefore represent the people’s interests.

Poor management of finances.
This is one of the main factors and covers a lot of aspects.

Where the money or resources are being lost due to corruption, theft and other activities that are not in line with the provisions of any of our laws, this becomes a problem of management.

The constitution which is the greatest law tells us how public finances should be handled, giving a list of principles that must be followed, but Zimbabwe sometimes fails to follow these and ends up failing to manage its finances.

  • Millin is a social and justice ambassador. These weekly New Horizon articles, published in the Zimbabwe Independent, are co-ordinated by Lovemore Kadenge, an independent consultant, past president of the Zimbabwe Economics Society and past president of the Chartered Governance and Accountancy Institute in Zimbabwe (CGI Zimbabwe). — kadenge.zes@gmail.com or mobile: +263 772 382 852.

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