The Zimbabwean government has published a Financial Adjustments Bill of 2019, which seeks parliamentary condonation for unauthorised expenditure worth US$9,68 billion.
The expenditure was incurred from 2015 to 2018. The Bill coincides with the announcement by government that austerity reforms have ended and the focus will now be on productivity and growth. The declaration might signal a return to expansionary policies that saw domestic debt balloon from US$275,8 million in December 2012 to US$9,5 billion in August 2018.
Off-budget financing through issuance of Treasury Bills (TBs) and borrowing from the central bank have become the Treasury’s preferred routes for resource mobilisation.
Despite declaring a budget surplus and savings of ZW$1,4 billion (US$87,5 million at interbank rate) for the period January to August 2019, the Treasury has issued Treasury Bills (TBs) worth over ZW$642 million (US$40,1 million) in the last four months.
Treasury Bills stock is now estimated at be over ZW$8 billion (US$500 million), with the government negotiating with various buyers to roll over TBs worth ZW$2,2 billion (US$137,5 million) to 2020. The country also has a sovereign debt burden of US$8 billion, which is growing because of penalties and non-payment interest.
Zimbabwe’s debt position might not rank as the worst in terms of debt-to-gross domestic product (GDP) ratio. According to International Monetary Fund 2019 data, a host of First World countries top the charts on debt to GDP ratio with Japan at 238%, Italy 134% and the United States of America at 106%. Closer home, Mozambique has debts of over 124% of GDP while Angola has 91% and Egypt has 87%. The IMF points that global debt has grown to US$188 trillion, which amounts to 230% of the world economic output.
The biggest concern about Zimbabwe is on debt repayment record and the purpose of contracting debt in the first place as espoused by the concept of Good Debt versus Bad Debt. Good public debt leads to gross fixed capital formation and GDP growth while bad debt feeds unrestrained government consumption and recurring expenditure.
Gross fixed capital formation pertains to key infrastructure developments such as roads and communications network, rail, ports, hospitals, schools, financial infrastructure and real estate among other investments. There is a direct correlation between the country’s gross fixed capital formation and its GDP growth. This explains why First World countries such as Japan, Singapore, Italy, USA and Belgium have high debt-to-GDP ratios.
They use debt to boost economic growth and channel government expenditure to key infrastructure developments that create business opportunities for the local market and unlock private sector investment.
