Zimpapers Logo

TWO years have passed since the inception of the Global Political Agreement that saw the country’s three major political parties coming together to create an inclusive Government that has changed the economic landscape of Zimbabwe.
This has set a precedent for other African states. The coming into being of the inclusive Government is a clear testimony of how political acrimony can derail progress of a nation inspite of voluminous blueprints to solve its economic malaise, one of which is external debt.
According to the latest statistics from the Reserve Bank of Zimbabwe, the country’s total external debt stock amounted to US$6,929 billion representing almost 103 percent of Gross Domestic Product as at December 31 last year.
RBZ Governor Dr Gideon Gono went on to state that the greater portion of the external debt is owed to multilateral creditors, which account for 36 percent of the country’s aggregate debt.
The Government continues dominating the debt stock with their portion representing 57 percent, private sector owes 36 percent, bilateral and commercial creditors are owed 33 percent and 31 percent respectively.
It genuinely means for a country with a population of above 13,5 million people, each citizen has a debt of around US$480 million regardless of whether one is born today or not.
As at December 31, 2009, the external debt stood at US$5,67 billion with arrears sitting at US$4,24 billion and capital at US$1,42 billion.
The private sector still lags behind the public sector in terms of borrowings, which can be a clear symptom of either a large Government or an inward-looking private sector, which is risk averse through streamlining its loan book.
The gloomy picture comes from the composition of the Paris Club or the creditors, ranging from Germany, France, UK, Japan and the US.
These are the very creditors with an unimpressive diplomatic relationship with Zimbabwe which means Zimbabwe surely has to go it alone.
Of the non-Paris Club members which are more friendly to Zimbabwe, China is the largest creditor, followed by South Africa, Saudi Arabia and then Israel.
A larger external debt has its own implications and meaning to the citizens of a nation, internationally, a maximum debt to GDP ratio of 60 percent is what is tolerable.
Any ratio above that shows the absence of sustainable development. In our case this means we are bringing in a generation of debtors to the world from the time they are born.
No nation on this planet has ever developed without primarily addressing its external debt position.
The current inclusive Government must be treating it as an urgent subject which needs serious consideration if the US$100 billion economy which is being envisaged in some quarters is to be realised.
If our current GDP figures of above US$5,2 billion are to be considered, it means whoever is willing to bail us out of that debt can use Zimbabwe as mortgage or security to recover his or her debt.
This is simply because the amount of wealth the nation is generating is below what we owe the world.
However, in real terms it can be argued that do we really owe the world anything or it’s a result of our disorganisation when it comes to set terms and limits to the investing multinationals.
If the multinational companies in Zimbabwe combined can amass an aggregate profit after tax of around US$7 billion every year, why should Zimbabwe owe them more than they are making from its land? It must be an economic paradox.
A general overview of selected indicators of economic performance for the past decade might help explain why the nation is sitting on such an unsustainable debt level.
In the year 2000, Zimbabwe had a GDP level of around US$8,6 billion and the GDP growth was -7,9 percent, in 2008 the GDP levels had contracted to US$3,145 billion with a GDP growth of -14,4 percent.
With an estimated population of 12,5 million people in 2000, the GDP per capita was US$688, and it declined significantly to US$268 in 2008.
This has also seen the major pillars of the economy which include tourism, agriculture, manufacturing and mining reaching rock bottom in terms of output.
The stock market tried to put on a brave face but this was shortlived since the fundamentals in the market were pointing southwards when the bourse was moving northwards.
The market capitalisation of listed companies as a percentage of GDP rose from 32,9 percent in 2000 to 82,5 percent in 2008 and up to 109 percent in 2009.
This does not necessarily imply an improved stock market performance since the relationship increase was stirred more by GDP decline than by market performance.
ZSE had record listings of around 81 counters during the worst economic year, which was 2008.
Save for shares in Hwange Colliery, CBZ, ZimRe Holdings Limited and ZB Bank, the Government is not an active shareholder in most of the listed counters which continued to compromise their revenue base even in the happier times of stock market.
The race issue still seems to continue playing a subtle role in the structuring of the clientele book by the stockbrokers with most of their books deprived of a foreign component hence the persistence of a liquidity crunch in the economy.
In trying to solve the external debt burden Government needs a comprehensive policy that should entail disposing of those parastatals which are demanding the largest chunk of the fiscus first while at the same time setting time guidelines for turnaround by the benefactors.
The solution to our external debt must be driven internally given the untamed resource base of the nation and also its skills base.
The Heavily Indebted Poor Country strategy might not be the most ideal solution given that our country’s perceived risk profile might not allow the bilateral creditors to dole out their funds without tampering with the political framework of the nation.
Any attempt to proffer political advice by the Paris Club will be tantamount to meddling in the political affairs of our nation, which will not help the case but rather push the whole nation back to pre-September 11, 2008 era.
The National Budget remains ineffective in addressing the external debt due to the limited fiscal space with the overall line ministries having requested above US$12 billion against the actual sum of US$2,7 billion.
There are less than 200 000 civil servants employed by the Government but any attempt to raise their salaries even by a meagre sum has negative repercussions, the wage bill remains an anathema under the expenditure section of the budget.
The external debt argument goes on to have implications even on the indigenisation and economic empowerment policy of the land.
Sectors such as mining which are capital-intensive must be treated with due care since any attempt to indigenise them without proper due diligence might leave the nation deprived of revenue through depleted corporate tax which tends to add to the woes of an already indebted nation.
Zimbabwe has to tackle its political foes with a clean debt record otherwise any attempt to steer its own direction will be compromised, not only on the aspect of national pride but also in terms of its sovereignty.
The moment is now for the GNU to prioritise the national debt correction. Two years have passed by under the inclusive Government and the external debt is even much higher today than it was during the period of political bickering and fighting. Are we progressing as a nation?
Good bye and be blessed. Thank You.
Christopher Takunda Mugaga
Head of Research
Econometer Global Capital
+263 772 340 353, +263 776 266 062
[email protected]