Zim’s debt bombshell

LIVINGSTONE MARUFU

The plan by President Emmerson Mnangagwa’s administration to borrow about US$3.5bn to compensate former  commercial white farmers will leave the country on the brink, business executives warned this week.

Finance and Economic Development Minister, Mthuli Ncube recently said Treasury has engaged a United Kingdom financial advisor, Newstate Partners UK, to lead and assist in the mobilisation of the funds needed to compensate the former farmers.

But, the Zimbabwe National Chamber of Commerce CEO Christopher Mugaga said the move would hamstrung the country’s operations to unsustainable levels.

“The US$3.5bn for the compensation of former farm owners under the Global Compensation Deed of July 2020 shall also be included on the debt once the farmers sign a cessation agreement,” Mugaga told Business Times.

“Adding these amounts to the reported debt of US$10.7bn, US$2.8bn blocked funds and other Reserve Bank of Zimbabwe running facilities give an estimated total debt figure of US$17.379bn which translates to an indicative total Debt to GDP ratio of 118%. This is somewhat closer to the real picture than the figures reported by the Finance ministry.”

He said the due process was not followed in engaging the advisor as the cost implications to the government would affect the country.

Mugaga proposed that no debt should ever be procured without the involvement of the Parliament of Zimbabwe in the interest of transparency, accountability and confidence building.

He said this also applies to the assumption of debts by the RBZ, which, if not interrogated, will see the public paying for other people’s private debts.

According to the Public Debt Management Office, Zimbabwe’s total public and publicly guaranteed external and domestic debt stood at US$10.7bn, comprising US$8.4bn (external) and US$204m (domestic).

This translates to a total debt to GDP ratio of 72.6%, made up of external debt to GDP ratio of 71.2% and domestic debt to GDP ratio, 1.4%.

The total debt to GDP ratio of 72.6% exceeds the 70% provided for in the Public Debt Management Act (Chapter 22:21) of GDP, implying that the country is in debt distress.

The 2020 Joint World Bank-IMF Debt Sustainability Analysis also came to a similar conclusion.

Mugaga said it is important to note that the debt figure does not include other RBZ running facilities not guaranteed by the Government, amounting to US$379m and blocked funds amounting to US$2.8bn  (still under due diligence pending debt assumption).

The International Monetary Fund has just approved a US$650bn Special Drawing Rights Allocation.

There was an expenditure overrun of ZWL$7.8bn for the half-year, beyond the targeted ZWL$189.8bn.

However, this was compensated for by a positive variance in revenue collections which exceeded the ZWL$182.1bn target by ZWL$16.1bn.

As a result, a targeted budget deficit of ZWL$7.7bn has been replaced by a surplus of ZWL$570m.

Another executive said while the surplus is a positive outcome, the expenditure overrun is a red flag for the second half of the year.

“In the absence of the overrun, the budget surplus would have been much higher at ZWL$8.4bn.  In terms of budget utilisation, social benefits and subsidies have already surpassed the full-year targets, standing at 119% and 102% of their annual target, respectively,” the executive said.

Budget deficit pressures for the 2021 fiscal year are likely to emanate from these social expenditures, especially if Covid-19 cases continue to increase, necessitating the extension of the lockdowns and increasing vulnerability, the executive said.

Mugaga said there was need for subsidies to be targeted and limited to vulnerable groups only underscoring the importance of social expenditures given the status quo.