Zimbabwe’s macroeconomic challenges are primarily rooted in the huge debt burden. The country has been in debt distress since 2000 when it first defaulted on its external debt obligations. Zimbabwe is one of the African countries in debt distress together with other countries including Mozambique, Sudan, and Somalia.
Zimbabwe’s public debt is at unsustainable levels with External Debt staggering at about US$10.545 billion as at September 2019 and Domestic Debt lingering around ZWL$8.868 billion as at December 2019. The fact that about 60.35% of the external debt is in arrears evidently shows that the country is failing to clear its debt stock, as a result the country’s credit rating is affected.
Lack of legislation or lack of political will?
The bigger question remains, is it out of a lack of legislation and institutional framework that has plunged the country into such huge debt distress? Zimbabwe has never lacked legislation and institutional framework for debt management rather what is lacking is the political will to implement the existing legislation as well as ensuring the autonomy of the responsible institutions.
The country’s huge debt burden exist alongside various legislations governing the management of public debt in Zimbabwe and these include the Constitution of Zimbabwe, Public Debt Management Act, the Reserve Bank Act [Chapter 22:15] and the Public Finance Management Act [Chapter 22:19] which provides for transparency, accountability and above all prudence in the borrowing and expenditure of funds.
The Public Debt Management Act of 2015 is the prime legislative instrument that provides for major guidelines on public borrowing and debt servicing in Zimbabwe. The Act also establishes the Public Debt Management Office, a strategic office mandated to among other things, prepare a Medium-Term Debt Management Strategy, a strategy with the main purpose of ensuring debt sustainability through the production of debt analyses and advising the Ministry of Finance and Economic Development. The Parliament of Zimbabwe is also mandated by Section 299 and 300 of the Constitution of Zimbabwe to monitor and oversee expenditure by the State and all Commissions and institutions and agencies of government and ensuring adherence to limits on state borrowings.
Despite the Parliament of Zimbabwe’s mandate to ensure adherence to limits on state borrowings, the ratio of public debt to Gross Domestic Product (GDP) continues to go beyond prescribed thresholds such that before the rebasing of the economy, debt to GDP ratio was at 137% against the legal 70% threshold.
Despite the existence of clear legal and institutional frameworks guiding debt management in Zimbabwe, the country is still grappling with a huge debt burden with underlying effects from the social and economic spectrum. However, the major challenge haunting the country’s debt management spectrum is lack of compliance by the responsible authorities and this is evident in the successive Auditor General’s Reports. The International Monetary Fund (IMF) which the country desperately needs for the economic bailout has also noted similar concerns this year, where the financial institution noted that that debt management in Zimbabwe is weak and debt statistics are not systematically compiled and published.
From the aforementioned arguments, it is evident that Zimbabwe does not suffer from lack of legislation and institutional framework in the management of public debt. The country’s huge debt burden is born out lack of political will to implement the progressive legislation and strengthen the responsible institutions. The country should adhere to the set debt management provisions in the Public Debt Management Act and other necessary legislations like the Constitution of Zimbabwe, the Reserve Bank Act and the Public Finance Management Act.
This must be coupled with the implementation of the Medium Debt Strategy to guide the debt process in the short to medium term as well as detailed compilation and regular publishing of various debt statistics are also needed to clear the gap. There is a need to grow the economy through effective domestic resource mobilisation to raise the country’s debt-servicing capacity as well as increasing its capacity to absorb external shocks; promote non-debt flows to meet the budgetary requirements; implement political and economic reforms to facilitate the crafting of an effective debt resolution strategy.
Zimbabwe Coalition on Debt and Development (ZIMCODD) recently produced research papers on the interface of public debt and various sectors and interest groups towards enhanced transparency in the management of public debt.
Find out more on debt management policy in Zimbabwe on the link below.
DEBT MANAGEMENT POLICY: KEY FOR SUSTAINABLE DEBT MANAGEMENT IN ZIMBABWE