adminVision 2030 Allen Choruma
(Continued from last week)
Last week, we noted that Zimbabwe is hamstrung by debt to such an extent that if a robust debt management strategy — buttressed by fiscal discipline — is not adopted to manage both foreign and domestic debt, this may affect the country’s pursuit of Vision 2030.
Fiscal Discipline
Fiscal indiscipline has in the past been blamed for the country’s huge domestic and foreign debt, which has often resulted in the accumulation of arrears, interest and penalties. Most borrowings were driven by unbudgeted Government expenditure.
By the end of last year, Treasury Bills (TBs) stood at US$1,27 billion, while the Reserve Bank of Zimbabwe (RBZ) overdraft was US$2,5 billion, which implies Government was spending beyond its means and borrowing excessively from the domestic market to finance expenditure. The previous administration’s penchant for unrestrained borrowing has been progressively feeding the fiscal deficit to such an extent that by the end of 2018, the fiscal deficit stood at US$2,8 billion or 11,7 percent of gross domestic product (GDP).
Official statistics indicate that by November last year, the country’s overall debt stood at US$17,7 billion, of which US$9,6 billion (54 percent) was domestic debt and US$7,6 billion (46 percent) was foreign debt.
Of the US$7,6 billion in foreign debt, US$5,6 billion is in arrears, interest and penalties.
Foreign debt is denominated in US dollars, which means that its impact on the economy is huge. It is, therefore, unsurprising that fiscal discipline is the hallmark of the Transitional Stabilisation Programme (TSP) and the 2019 National Budget.
Encouragingly, there are already signs that Finance Minister Professor Mthuli Ncube is balancing the budget through fiscal consolidation. Political will in support of fiscal austerity measures is critical to ensure that Treasury’s efforts are sustained and fruitful.
Rule of law
In the past, Government’s domestic borrowings failed to abide by laws such as the Public Debt Management Act (Chapter: 22:21), Public Finance Management Act (Chapter: 22:19) and the Reserve Bank Act (Chapter: 22:15) that govern debt. Section 11(2) of the Public Debt Management Act stipulates that public debt may not exceed 70 percent of gross domestic product (GDP) at current market prices at the end of any fiscal year.
After the economy was rebased to US$20,5 billion, the national debt now stands at 86,2 percent of GDP and is 14,2 percent outside the 70 percent statutory limit.
Section 11(1) of the Reserve Bank Act provides that Government borrowing will not exceed 20 percent of the previous year’s revenues. Noticeably, Government’s overdraft facility with the RBZ stood at US$2,5 billion by September 2018, representing 65 percent of the 2017 revenues of US$3,9 billion.
The new administration has, however, made a commitment to observe laws that govern public debt going forward.
It is hoped that Minister Ncube will walk the talk.
Role of Parliament
Parliament’s role in managing public debt is clearly outlined in the Constitution, Public Debt Management Act, and Public Finance Management Act.
It delegates its oversight through the Public Accounts Committee.
Section 300 of the Constitution allows Parliament to limit State borrowings, public debt and State guarantees.
In essence, the limits for public debt cannot be exceeded without approval from Parliament. But Parliament can only grant that approval under special conditions such as in cases of natural disasters and other emergencies, or, in some instances, where there is an urgent public investment project that has to be implemented.
To enable Parliament to exercise its oversight functions effectively, Section 300 (4) of the Constitution provides that the Minister of Finance must report to Parliament at least twice a year on the performance of public loans raised by the State.
Worryingly, notwithstanding the provisions of the law, Government has in the past violated public debt provisions with impunity and borrowed excessively without authority of Parliament and beyond the sustainable limits prescribed by law. Parliament clearly slept on the job. Going forward, Parliament will assume its oversight role effectively and ensure that Government borrowing activities are done in line with the law and that there is appropriate disclosure and accountability on public debt issues.
Independent Debt Audit
There is still need to interrogate the country’s national debt levels as some economists believe that the US$17,7 billion could be understated, especially when debts owed by parastatals and other public institutions are taken into account. Government has taken over debt from institutions such as the Reserve Bank of Zimbabwe (RBZ), Zimbabwe Asset Management Company (Zamco), Air Zimbabwe and Ziscosteel, among others.
It also recently announced that it will soon complete the assumption of TelOne’s debt, which stands at US$383 million. Government has also been talking about compensating white former commercial farmers for improvements on land which was compulsorily acquired by the State under the fast-track land reform programme. This liability will also form part of Government’s debt. This is why there are calls for a comprehensive, independent and transparent national debt audit to ensure that public debt is verified.
Debt Strategy
Zimbabwe has sufficient legal instruments to manage public debt, but what has been lacking in the past is fiscal discipline to borrow sustainably and ensure that Government spends within its means and that expenditure is not incurred arbitrarily. Going forward, a national debt strategy is needed to ensure that Zimbabwe manages its public debt effectively and in a transparent manner.
Allen Choruma can be contacted on: [email protected]
Online Reporter