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‘Debt assumption fuelling corruption’

GOVERNMENT’S continuous assumption of debts of state-owned enterprises without determining how the arrears were accrued fuels corruption and misallocation of resources, analysts have warned.

Government has assumed a number of state-run firms’ debts amounting to billions of United States dollars despite warnings that it is cultivating a bad culture.

Some of these include Ziscosteel’s US$500 million and the Reserve Bank of Zimbabwe (RBZ)’s US$1,4 billion debts.

In 2019, the government approved the assumption of TelOne’s US$383 million legacy loans.

Cabinet last year also resolved to assume the Air Zimbabwe debt exceeding US$300 million.

In January this year, the government assumed US$3,8 billion fresh RBZ legacy debts.

This is the amount the RBZ agreed to pay as opposed to over US$6 billion being claimed by 855 companies, which the apex bank failed to help repatriate funds due to forex shortages.

In the past week, a parliamentary portfolio committee recommended that the Finance ministry warehouses the Zimbabwe Broadcasting Corporation (ZBC)’s legacy debts.

The state broadcaster’s legacy debt dates back to 2005, according to the committee.

Some of the parastatals owed by ZBC include power utility Zesa Holdings, Zimbabwe Revenue Authority (Zimra), as well as Largadère Sports and Entertainment.

“The assumption of debt, from parastatals, by the government means that the debt that the parastatals incurred (whether for the good of the economy or out of unsound corporate governance processes) will now be shouldered by the ordinary citizens,” Stevenson Dhlamini, an applied economics lecturer at the National University of Science and Technology, said.

“If this process of debt assumption is undertaken without a thorough forensic audit to determine how the debts were acquired, then it will further fuel corruption and gross misallocation of resources amongst state-owned enterprises,” he added.

Dhlamini said forensic audits will ensure that the government does not assume any odious debts in the process and combat corruption.

“Furthermore, the assumption of debts by government is worsening domestic debt distress, which chases away potential investors and international financiers,” he said.

Analysts also pointed out that assuming parastatal debts and doling out funds to non-performing entities would burden an already over-taxed citizenry.

They called for the restructuring of most parastatals, giving top managers’ performance-based contracts while getting rid of poor performers.

Analysts added that the government delays to conduct forensic audits on debts acquired by parastatals showed that those running the firms were politically connected.

Government has not disclosed debtors owed US$1,35 billion to RBZ.

The debt has been passed on to the ordinary taxpayer.

In its February 2022 economic report, the Zimbabwe coalition on Debt and Development (Zimcodd) said as of September 2021, public and publicly guaranteed (PPG) debt was recorded at US$13,7 billion.

Of this debt, external debt constituted US$13,2 billion while domestic debt was US$532 million.

This public debt constitutes about 85% of the country’s gross domestic product (GDP), way above the 70% threshold.

Accounting for the January 2022 assumption of RBZ debt, Zimcodd said total public debt will expand to US$14,2 billion.

The RBZ debt alone, totalling US$5,4 billion now constitutes over 30% of total debt stock.

“Generally, a debt-GDP ratio shows a country’s capacity to repay its debts, with a rising ratio indicating that debt is growing faster than national income.

“As such, the ballooning Zimbabwe debt is a cause for concern, especially under the context of the Covid-19 pandemic, fragile domestic election season, worsening global geopolitics between nuclear superpowers, and a mounting global inflation wave.

“Therefore, there is a need to undertake an independent public debt audit that will inform the scale and nature of the country’s debts, which are often not transparently publicised.

“An audit will also become a building block to popularise discussion about the legitimacy of certain debts and whether they should be repaid,” Zimcodd added.

Zimbabwe needed to revamp its public debt management, a process of establishing and executing a strategy to ensure that the government’s financing needs, and its payment obligations are met at the lowest possible cost and consistent with a prudent degree of risk, interest rate risk, currency risk as well other risks, experts said.

Debt assumption, according to Zimcodd will have negative socioeconomic effects on the ordinary people, as it translates to an extra financial burden on taxpayers.

Zimbabweans are being heavily taxed through continuous price hikes, and the intermediated money transfer tax, known as the 2% tax.

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