Commercial Farmers' Union of Zimbabwe

Commercial Farmers' Union of Zimbabwe

***The views expressed in the articles published on this website DO NOT necessarily express the views of the Commercial Farmers' Union.***

Debt: The albatross around Zim’s neck

Debt: The albatross around Zim’s neck

Thursday, 04 August 2011 17:36

By Deprose Muchena

IT IS common cause that the Government of National Unity (GNU) has presided 
over a dramatic economic turnaround, which has seen the country claw its way 
back from the brink of total economic collapse. It is also widely 
acknowledged that there are serious obstacles in the way of a sustainable 
economic recovery. However, it is not universally known that one of the most 
serious constraints — indeed it is an almighty albatross around the country’s 
neck — is Zimbabwe’s massive debt burden.

To appreciate the full scale of the economic crisis, it is important to note 
that Zimbabwe faced a myriad of socio-economic and governance challenges 
prior to the inauguration of the GNU. The economy had cumulatively declined 
by 54,8% from 1999 to 2008, resulting in one of the longest recessions in 
the history of any country. Prolonged international isolation since the 
launch of the fast track land reform programme in 2000 resulted in no 
meaningful engagement with the international community and development 

Widespread poverty and gross inequality unleashed a damaging assault on 
social stability. Social indicators fell dramatically, while incomes 
plummeted across the labour market as more and more companies closed. 
Unemployment and underemployment soared across all social classes; mass 
informalisation of the economy took root. Social mobility and equal 
opportunities had become alien concepts for most people.

Other key characteristics of Zimbabwe’s macroeconomic crisis included 
foreign currency shortages, de-industrialisation, deteriorating 
infrastructure, low capacity utilisation, food and fuel shortages and a 
constrained supply of basic utilities such as electricity and water, among 
others. Industrial capacity utilisation plummeted demonstrating the severity 
of the economic collapse and the extent to which the manufacturing sector — 
the second most dynamic sector of the economy after agriculture — had 
surrendered its potency and promise.

The economic meltdown was largely underpinned by runaway inflation, which 
officially peaked at 231 million percent in July 2008 — although an 
unpublished report in December 2008 estimated that it had risen to 3,2 
quintillion percent.

While populists were clamouring for the continued existence of the Zimbabwe 
dollar, the move immediately eliminated the notorious parallel market for 
goods, cash and services. It slashed inflation from millions of percent to 
single digits. The multi-currency regime boosted business confidence, 
generated an atmosphere of predictability and soon companies began to 
increase their activity and profits.

Significant progress has definitely been made under the auspices of the GNU, 
at least in terms of stabilising the economy and meeting basic needs, 
particularly in health and education.

For this, the economic and social ministries need to be commended. However, 
these gains are slowly being reversed by the lack of sustainable economic 
development and the absence of an effective recovery strategy for the 
economy. Indeed, the economy is suffering from a structural malaise.

Despite registering economic growth in the last two years, this growth has 
not translated into better human development indices or much needed jobs. 
Zimbabwe is experiencing a kind of zero sum growth trajectory — with a 
nominal growth in GDP without any corresponding jobs or opportunities 

Therefore, the economic “recovery” remains very fragile, particularly as it 
is dependent on a stable political situation. And because it is being 
weighed down by an enormous burden — billions of US dollars of debt.

Zimbabwe’s sovereign debt overhang has not improved since the signing of the 
GNU — and it is unlikely to improve in the near future as the country 
battles to finance its economic recovery and social development.

The exact debt stock is debatable as official reports vary. However, 
Zimbabwe currently faces a debt overhang conservatively estimated at US$6,9 
billion — including US$5,2 billion in external debt. Of the publicly 
guaranteed debt, US$3,2 billion is in arrears — including US$1,3 billion 
owed to multilateral creditors (International Monetary Fund, World Bank and 
other institutions), US$1,6 billion to bilateral creditors (Paris Club and 
other individual countries) and US$200 million to credit suppliers .

With the 2009 Short Term Emergency Recovery Plan having identified a 
resource gap of around US$8,3 billion for economic recovery, the greatest 
challenge for the government is its ability — or lack thereof — to mobilise 
financial resources to fund projects identified as critical for recovery. I

f the government needs to find US$8,3 billion for its recovery programme on 
top of its debt obligations, then Zimbabwe somehow has to find US$15 billion 
in the short term. Overall, following the cumulative economic contraction 
between 1998 and 2008, the country needs US$45 billion over the next 10 
years to regain the Gross Domestic Product (GDP) levels of 1997.

Globally speaking, many developing countries are caught in a vicious cycle 
like Zimbabwe. The problems of under-funded social sectors such as education 
and over-indebtedness are mutually reinforcing.

As governments struggle to meet unsustainable debt obligations, they are 
forced to redirect scarce resources that could otherwise be used to achieve 
the objectives of the Education for All campaign or the Millennium 
Development Goals (MDGs). In many countries, debt servicing accounts for a 
larger portion of the national wealth than the portion invested in 
education — and this is clearly contributing to the fact that many 
countries, including Zimbabwe, are not on course to achieve the MDGs by 

The first step is for Zimbabweans — and the international community — to 
publicly acknowledge the size of the debt problem and how it is acting as a 
serious drag on the economic ship of state. While civil society 
organisations in Zimbabwe have highlighted the issue, some elements of the 
GNU continue to deny the shocking reality of Zimbabwe’s indebtedness.

In particular, there has been fierce opposition to declaring Zimbabwe a 
highly indebted poor country, despite the fact that it is exactly that. But 
the issue is not about whether to declare Zimbabwe a highly indebted poor 
country or not. Zimbabwe has already been declared a crisis country, a 
fragile state, a failed state, and a low-income country under stress among 
others. These declarations do not resolve anything. Specific policy, 
legislative and economic governance measures are needed.

While there have been some legislative changes, such as the Public Finance 
Management Act, these have not been enough to remove the debt albatross. A 
host of reforms are urgently needed, including the creation of a strong and 
well-supported treasury; the establishment of a robust parliamentary 
oversight mechanism with a greater role for the portfolio committees 
responsible for national accounts, budget and revenue generation; and the 
construction of a developmental democratic state that prioritises good 
economic governance. Together these reforms will allow the government to 
design and implement a sustainable debt management and relief strategy.

Given Zimbabwe’s levels of socio-economic distress, activists and civil 
society organisations also maintain that the repayment of external debt 
should not be given any priority until a proper national debt audit has been 
carried out, which will show whether any of the debt is odious and 
illegitimate. Side by side with this, there is a strong view that neither 
debt cancellation (which is desirable) nor new loans (which are necessary) 
should be extended until loan contraction and debt management legislation 
and processes are thoroughly reviewed  — so it is imperative that the debt 
audit is carried out now.

There is also an urgent need to pinpoint any odious debt and then cancel it 
either because the creditors provided loans in the full knowledge that the 
money would not be used in the legitimate national interest or simply 
because they are un-payable. The Doctrine of Odious Debts, although now more 
than 70 years old, helps to bring clarity to today’s complicated Third World 
debt situation, where innocent citizens end up paying while corrupt and 
negligent borrowers and lenders get away scot-free.

While the global South makes compelling moral arguments to cancel its 
foreign debts, it also possesses an indisputable legal case because the 
overwhelming majority of these debts are odious in law. “If a despotic power 
incurs a debt not for the needs or in the interest of the state, but to 
strengthen its despotic regime, to repress the population that fights 
against it, etc, this debt is odious for the population of all the state.”

Finally, there is need for an imaginative and sustainable debt clearance 
strategy, which combines re-negotiating repayments — including the 
rescheduling of some debts and a moratorium on others — to enable the 
accumulation of resources to repay legitimate debts, as well as systemic 
policy and legislative reform to support the new debt management framework. 
Once these actions are taken, Zimbabwe may not need to become part of the 
highly indebted poor country initiative in its classic form — especially as 
evidence from Zambia, Mozambique, Tanzania and Uganda among others, does not 
provide a favourable picture of the impact of highly indebted poor country 
status on debt relief.

The debt burden is the biggest albatross around Zimbabwe’s neck. It stands 
in the way of Zimbabwe’s economic recovery and long-term economic 
development. Its resolution requires domestic leadership and political will 
to reform policy, legislation and practice. In addition, the international 
community needs to be creative and supportive — realising that economic 
stabilisation is still in its nascent stages, recovery is still 
characterised by “jobless growth” and key social sectors are still 
recovering from a decade-long malaise. The un-payable debt needs to be 
cancelled, thereby offering Zimbabwe a fresh start and brighter prospects 
under new economic governance rules.


Tobacco sales fetch US$258m

Tobacco sales fetch US$258m    Herald 3/7/2020 Herald Reporter Tobacco sales have reached 110 million kilogrammes worth US$258 million, with deliveries to contract companies and

Read More »

Agric tops micro-finance loan book

Agric tops micro-finance loan book  Herald 12/9/2019   Mr Chitambo Fradreck Gorwe Business Reporter Good rains anticipated countrywide during the 2019/20 farming season, have seen agriculture

Read More »

New Posts: