Zimbabwe is in debt distress and cannot borrow from international financial institutions due its overdue obligation.
This has prevented Zimbabwe from accessing cheap lines of credit to oil the economy.
Tirivangani Mutazu, Senior Policy Analyst at the African Forum and Network on Debt and Development (AFRODAD) tells our Acting Editor Ndamu Sandu (NS) that there is a way out for Zimbabwe if it goes for debt restructuring.
Find excerpts below:
NS: The Public Debt Management Act compels the Minister of Finance to submit details about status of debts twice a year. The Minister has failed to comply with that amid reports that some of the information provided is incomplete. What message does that non-compliance send out on Zimbabwe’s ability to manage its debt?
TM: The failure to send comprehensive reports to parliament is a punishable offence by parliament.
The failure to avail the comprehensive reports creates mistrust between citizens and government.
Parliament has interpreted the callous disregard by the Minister.
The resistance by the executive to follow the public finance legislation is a huge set back on transparency and accountability which are important principles of good governance.
We noted that the Minister has been submitting the debt reports but as part of the National Budget.
The question is on the comprehensiveness of the reports that is what has been lacking.
The Parliament Portfolio Committee on Public accounts in its Report to Parliament in 2019 together with other issues raised by parliamentarians noted that between 2014 and 2019 the government has been borrowing without parliament approval and the Minister of Finance has been bringing conflicting figures of total public debt .
The Portfolio Committee on Public Accounts raised a number of issues in their report to parliament that include:
– Use of country’s minerals as security when borrowing loans. – Contracting debt without parliament approval.
– The state overdraft from RBZ was above the stipulated threshold (RBZ Act) of 20% of previous year‘s revenue since 2013 – Multiple sources of debt contraction (only the Ministry of Finance should contract public debt) and lack of coordination between RBZ and Ministry of Finance.
NS: What role should Parliament play in ensuring that Zimbabwe does not contract unnecessary debt?
TM: Parliament is the custodian of citizens’ interest i.e. national interest. It forms an important part of the three arms of government (the executive, judiciary and parliament).
Parliament the world over has power of the national purse i.e. they approve and control national budget, international treaties and agreements that impose fiscal obligations on the state.
They have power to allocate resources in a way that promote equitable socioeconomic development and good governance for the benefit of all citizens.
Parliament approval of use of public resources is a democratic foundation stone derived from the constitution to enhance transparency and accountability in public finance and curb abuse of power by the executive.
Fiscal prudence and sustainability hinges on the ability of the state to effectively manage its public debt. Involvement of parliament at all stages of debt contraction ensures that national interest is embraced at all stages of the cycle.
Parliament ensures that all due processes are followed by the executive in borrowing and that the ceiling of 70% of GDP is not exceeded
NS: Have you assisted government in resolving the debt crisis?
TM: AFRODAD’s mission is to contribute to Africa’s inclusive economic growth and sustainable development through influencing policy change on debt management and development finance anchored on rights-based approaches.
As a pan African organisation, we have done a number of initiatives to promote sustainable debt management in African countries.
We have developed an African Borrowing Charter which helps parliamentarians and citizens with the key guiding principles that should be followed when a country is borrowing or restructuring its debt.
It aims to contribute to improvements in transparency of political, institutional and administrative processes used and the accountability of the state actors.
AFRODAD has also been producing Shadow Annual Debt Management Reports for Zimbabwe (2019 & 2020) as an alternative way of providing information on public debt.
We have also produced a number of research documents with alternative options for resolving the country’s debt crisis.
We have also done capacity building for parliamentarians on how to perform checks and balances in public finance management.
A number of policy dialogues and conference were also help which promoted interaction and discussion between the executive, parliament and citizens in one room.
NS: In what ways have you assisted government?
TM: AFRODAD does provide policy recommendations and alternatives to government.
Zimbabwe is not the only country in debt distress (8 SSA countries). A number of low income countries globally are sliding into debt distress due to many drivers.
– Zimbabwe government needs to ensure policy consistency as this is an important aspect to communicating its commitment to reforms and effort to enhance economic stability and growth.
– Borrowing should be guided by a Medium-Term Debt Management Strategy
– avoid adhoc borrowing worsen the country’s debt sustainability.
– Government should limit collateralised external borrowing to preserve these resources for future generation.
– The national assembly to enhance its oversight role on Government as stated in the Constitution to ensure accountability and transparency on the use of borrowed resources.
– While the debt is necessary to assist in the country’s COVID-19 response to the economic and humanitarian impacts, it has the potential to further complicate negotiations with external creditors to restore debt sustainability.
NS: Is there a way forward for Zimbabwe since it is in debt distress and cannot access cheap funding from international financial institutions?
TM: A country in debt distress needs to engage its creditors in order to initiate debt restructuring.
The country first has to clear its arrears to the World Bank (US$300m as of 2019) and African Development Bank ($80m as of 2019) before it can access new funding. IFIs have a preferred creditor status –meaning their debts need to be serviced first before any other creditors.
NS: Zimbabwe has in the past come up with debt and arrears clearance strategies like the Zimbabwe Accelerated Arrears Clearance, Debt and Development Strategy (ZAADS) and Lima plan to build bridges with international financial institutions.
In your views what were the reasons why those lofty plans failed to deliver?
TM: Yes, government has over the years adopted a series of debt resolution strategies, including reengaging the international community and negotiating a comprehensive package for arrears clearance and debt relief.
These strategies include ZAADS of 2012 and the Lima Strategy of 2015.
There is also a Parliament Portfolio Committee on Foreign Affairs which is complementing the re-engagement efforts of the Government.
However, reengagement with the international community continues to face delays, as government has yet to identify financing to clear arrears to multilateral institutions, and to speed up reforms that would facilitate resolution of arrears with bilateral creditors.
NS: How could Zimbabwe have done it differently?
TM: Debt resolution remains central to supporting the achievement of the government’s development objectives going forward as this will unlock the much-needed resources to address the huge infrastructure needs.
This involves a multi-stakeholder approach in designing realistic and implementable strategies on how to address the current debt challenges while learning from experiences of other countries that faced similar situations.
For international community, reengagement has become tied to improvements needed in governance, human rights, land tenure security, and electoral reforms.
The process of reaching political agreement on normalisation will require the country, and the international community, to confront and reconcile the existing disconnect and many of the predetermined narratives that have been forged over the years.
Comprehensive reforms remain pivotal to the implementation of the government’s arrears clearance and reengagement initiatives.
Continuous re-engagement with development partners is important in resolving the country’s public debt challenges.
NS: IMF recently warned that Zimbabwe was contracting new debts in the form of mortgaging resources. What impact will this have on Zimbabwe’s negotiations with creditors?
TM: There is limited public information on collateralised debt.
But evidence from across the world has shown that resource backed loans perform poorly in terms of loan productivity because if the government fails to pay the resource used as guarantee would be taken.
Resource backed loans are not fair because they steal from future generations who are supposed to benefit from the country’s resources also.
There are always issues when it comes to valuing mineral resources that are used to mortgage the loans and at the end the creditor always wins.
NS: Zimbabwe is set to go on the international financial markets to raise US$3.5bn to pay former farmers who lost their land during the land reform exercise.
This will be another debt burden for future generations. What proposals do you have for the repayment of former farmer without increasing Zimbabwe’s debt burden?
TM: It is true that external debt will increase by an additional US$3.5bn that the Government of Zimbabwe committed to pay as compensation to former commercial farmers displaced during the fast-track land re-distribution programme.
According to the Global Compensation Agreement of 2020, the Government of Zimbabwe is expected to borrow the US$3.5bn by issuing a long-term debt instrument of 30 years’ maturity in the international capital markets (Government of Zimbabwe, 2020).
This will further worsen debt sustainability indicators and potentially complicate negotiations with external creditors to restore debt sustainability.
There is also an arbitral award of 2009 International Center for Settlement of Investment Disputes (ICSID) requires the Government to pay €8.22m plus interest to claimants whose land was expropriated, and no compensation was paid.
The award remains unpaid. ICSID has periodically reminded Zimbabwe of this obligation.
Among the most viable proposals for the repayment of former farmers without increasing Zimbabwe’s debt burden would be increasing agricultural productivity.
The agricultural sector needs to play a critical role and make huge contributions to settle the bill.
If the “land is the economy and the economy is the land” let there be production on the farms.
Beneficiaries of the Land Reform must pay levy/tax that goes towards servicing the debt- tobacco farmers, crop and animal farmers, plantations, game reserves, new urban developers etc.
Government need to create a “Sinking Fund” to prioritise servicing of this debt.
Future generations need to live in peace and harmony with the rest of the world.
