Zim's public debt rises to $11,6bn

HARARE - Zimbabwe’s economy remains fragile with a “precarious” level of public debt during the year to March rising to over $11 billion, the Parliament Budget Office said in its latest report.

Zimbabwe’s domestic debt rose 40 percent to $4,3 billion, with external debt standing at $7,5 billion or 53 percent of GDP.

Of the $7,5 billion external debt, $5,2 billion is in arrears.

“Zimbabwe has been in debt distress for a long time and as at 31 March 2017, the country’s public debt stood at $11,6 billion or 82 percent of GDP (gross domestic product),” Parliament’s Budget Office said in the 2017 first quarter budget performance and outlook report.

The broke government has been using a raft of taxes and treasury bills to bankroll its $4,1 billion 2017 national budget since international institutions stopped lending to President Robert Mugabe’s administration, demanding clearance of the $7,5 billion in arrears.

Finance minister Patrick Chinamasa has said government was moving to clear its ballooning debt, after the IMF reinstated Zimbabwe’s voting rights after clearing its 15-year-old $125,3 million financial arrears in loan and interest with the Washington-based institution in October last year.

The IMF has relaxed its restrictions and has been providing consulting support to Zimbabwe since the country moved toward constitutional reforms and showed improvement in economic policy cooperation with the Fund.

In April, Chinamasa said Zimbabwe has met all conditions to clear arrears to the World Bank and African Development Bank, opening the door for possible future funding from the IMF, suspended in 1999.

Chinamasa said facilities negotiated by the Reserve Bank of Zimbabwe to repay the $1,75 billion arrears had been “scrutinised and scrutinised” by the World Bank and AfDB, who were satisfied, but did not state where the money came from.

“Clearance of debt arrears is expected to open the door to foreign finance inflows and possible debt treatment by the Paris Club and non-Paris Club Bilateral Creditors through an IMF financing programme,” Chinamasa said.

But Parliament’s Budget Office said there was little progress in arrears clearance.

“With regards to re-engagement efforts, not much progress has been recorded in the first quarter as the re-engagement with the Bretton Woods institution is hinged upon Zimbabwe repaying over $1,8 billion it owes to the World Bank and AfDB over and above other conditionalities of economic reforms.

“The country also owes $ 2.2 billion to the Paris Club and $1.1 billion to non-Paris,” Parliament’s Budget Office said.

Morgan Tsvangirai’s MDC has called on government  to get Zimbabwe’s staggering billions in debt written off under the Highly Indepbted Poor Countries (HIPC) initiative - a debt relief programme managed by the IMF and the World Bank.

To qualify for HIPC status, a country’s debt has to be considered to be beyond its ability to repay from its own resources, and then commit to sound economic management and institute broad reforms.

But Mugabe’s ruling Zanu PF party  does not want Zimbabwe classified as a HIPC saying the debt was a result of Western sanctions and the move will facilitate foreign interference in the country’s economic and political affairs, as well as project the country as an economic basket case.

“They have been arguing with this since the time we were in government and they would say in Cabinet, ‘no, how can we be called a poor country, we have diamonds, we have gold and we have platinum. Surely, we cannot be called poor’,” MDC economic policy chief and  former Economic Planning minister during the GNU, Tapiwa Mashakada, said.

“So it is pride, hollow pride. You can have all those resources but if you don’t utilize them and invest to make money out of those resources, it doesn’t mean anything to the ordinary man on the street.”

This comes as the cash-strapped government has battled to pay its bloated civil service, staggering pay dates, amid a tightening liquidity crunch. Earlier this year, Mugabe’s government buckled under pressure to borrow $180 million locally to pay outstanding bonuses for 2016 after civil servants threatened to go on strike.

“The government’s decision to pay the unbudgeted 2016 bonus after pressure from employee unions is likely to worsen the situation as Treasury Bills (TBs) worth $180 million are expected to be floated in the market to finance these bonus payments,” Parliament’s outlook report said.

This comes just after the government decided to clear its contribution arrears to National Social Security Authority (Nssa) spanning from June 2013 with TBs worth $180,9 million with tenure of seven years and a coupon rate of 5 percent per annum.

The country was estimated to have about $2,1 billion worth of TBs in the market as at February 28 2017, issued to bridge the government’s funding gap and clear the central bank’s debt, according to Parliament.

The Reserve Bank in January informed that government had issued long-dated TBs of $549 million to banks for the acquisition of non-performing loans by the Zimbabwe Asset Management Corporation (Zamco), long-dated TBs amounting to $300 million issued for the capitalisation of institutions that include the Reserve Bank, Agribank, IDBZ, ZB, Cottco and drugs manufacture CAPS; and has also issued medium to long-dated TBs amounting to $780 million under the Reserve Bank Debt Assumption Act for the central bank debt taken over by government.

Short-to-medium-dated TBs amounting to $450 million have also been issued to finance the gap between expenditure and revenue collection by government.

Parliament’s Budget Office said the economy is grappling with “several challenges ranging from underproduction, unsustainable fiscal deficit, liquidity constraints, depressed international commodity prices, debt overhang as well as limited Foreign Direct Investment (FDI).”

Mugabe’s indigenisation policies - which require local majority ownership of companies - has scared off much needed foreign investment.

Parliament’s Budget Office said: “No movement has been recorded with regards to amendment of the Indigenisation and Economic Empowerment Act to bring it in line with a policy clarification issued by the President in April 2016.”

High unemployment and power and water cuts have also taken their toll.

The country still grapples with severe liquidity challenges manifested trough acute cash challenges with no solution in sight. Mugabe’s government has been hit by dwindling foreign exchange inflows and acute shortages of cash that has forced banks to limit cash withdrawals to as low as $20.

Parliament’s Budget Office said the Office of the President and Cabinet, which has been coordinating policy pronouncement as well as any required clarifications to avoid conflicting interpretations of policies by different government ministries and departments, “has not moved in to clarify government policy on use of South African rand and repealing of (statutory instrument 64) SI64 (banning imports of basic goods) despite numerous conflicting press reports.”

However, Parliament projected higher economic growth of 3,7 percent this year, from an initial projection of 1,7 percent following a better than expected agriculture season

“It is pleasing to note that the country is on course to exceed the anticipated growth target buoyed by the successful agricultural season after the country received above normal rainfall,” Parliament’s Budget Office said. “Commodity prices have moderately recovered and that is expected to add another impetus to the growth target.”

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