IMF warns Zim, proposes tight leash on debt

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IMF country representative, Patrick Imam

PHILLIMON MHLANGA

The International Monetary Fund (IMF) has said government should establish a stronger public finance management framework amid rising debt. Zimbabwe’s debt overhang has remained a national and global topical issue and stood at US$18bn as at the end of June 2019.

The country’s indebtedness has been exacerbated by the huge debt arrears, currently at about 72% of the total debt. External debt is about US$8.1 billion. Total bilateral debt was about US$5.5bn while multilateral institutions are owed about US$2,5 billion.

The Paris club is owed about US$3.5bn while non-Paris club debt stands at US$1,5 billion. The European Investment Bank is owed about US$309m. Others are owed about US$74m. The debt overhang has been making it difficult for Zimbabwe to access fresh international capital, making it difficult to extricate itself from the prevailing economic turmoil.

Domestic debt was US$9,5 billion by June. Domestic debt to gross domestic product (GDP) was 37% last year compared to regional average of 20%. External debt to GDP exceeds 70%. Section 61 (a-b) of the Public Finance Management Act stipulates that the aggregate amount that may be borrowed in any financial year shall not exceed 30% of the general government revenue in the previous year.

This, however, has always been violated.

IMF Country representative, Patrick Imam told Business Times that Zimbabwe needs a stronger public finance management framework. “Debt management strategies should be anchored on credible macro-economic frameworks. Borrowing should only be considered for investment project with credibly high rates of return,” Imam said.

“Zimbabwe should also strengthen public debt transparency that can help support sustainable borrowing and lending practices. It should also improve recording and monitoring of debt, something which creates more complete picture to manage debt more effectively.”

The Confederation of Zimbabwe Industry (CZI) has expressed disquiet over government’s debt, which has a crowd out effect. The CZI said external and domestic debts have been driven by penalties on overdue external debt, budget deficit and depreciation of the local currency.

CZI trade economist, Clever Mucheneka,who spoke at a debt meeting organised by the African Forum and Network on Debt and Development, said debt can be positive if channelled to fund a critical mass of infrastructural projects and social sectors of the economy such as health, education, power and roads, this has not been the case with Zimbabwe.

“Government debt contributes to poor business climate,” Mucheneka said. “It reduces room for lending to the private sector. This has a crowd out effect. Large fiscal deficits are being financed through domestic borrowing. The private sector finds it difficult in attracting lines of credit. It hampers private investment and growth. There is also erosion of citizens’ value through debt. That is the reduction of aggregate demand, thereby affecting production output.”

Government has been attempting to address the debt problem through a number of initiatives such as domestic debt restructuring (2001- 2008), sustainable and holistic debt strategy of 2010, the Zimbabwe Accelerated Arrears Clearance Debt and Development Strategy in 2010, the LIMA strategy in 2015, implementation of the International Monetary Fund (IMF) staff monitored programme.