The way a republic works is that we select a few people to run the country on our behalf. We give them terms and in Zimbabwe we evaluate their performance every five years. If we are not happy with their performance, in theory at least, we choose other stewards.
Evaluation time is almost upon us in Zimbabwe and we will get to decide who to entrust our country’s future to. So how do we evaluate the performance of the executive team that has been in power since 2018?
There are many metrics we can look at to gauge just where the economy is. How has the inflation rate trended, has GDP grown, has the unemployment rate decreased and so on. There is yet another metric we don’t usually discuss – national debt.
The constitution of Zimbabwe requires the Finance minister to table a comprehensive statement on the public debt of the country. The latest such statement was released at the end of 2021. That’s where we found out that national debt per capita is around $1,200.
What is national debt?
It’s as simple as it sounds. It is how much Zimbabwe owes to lenders. Zimbabwe was US$17.2bn in debt as at the end of 2021.
For some reason that doesn’t seem high to me, probably because we are the same country that might or might not have lost US$15bn the way one loses a pencil.
We could say the govt is the one in debt but the govt represents the people and it is the people that are really in debt.
If we divide the 17.2 billion between our 15 odd million citizens we get $1,150. That’s your share of the national debt.
I wish I could say our national debt is contained thanks to prudence but no, that’s not it at all. We have been trying to borrow more and were it not for the large lenders demanding we clear the old loans first, we would have a much higher national debt.
Who do we owe?
Bilateral creditors – US$5.4 billion
That’s a fancy way of saying this is owed to other countries. Govts do lend to each other and the famous Paris Club helps them meet and do this. You no doubt have heard of the Paris Club, the group of major creditor countries.
Not all bilateral creditors are members of the Paris Club but it is the main one. In Zimbabwe’s case, as regards bilateral creditors we owe US$3.8bn to the Paris Club and US$1.7bn to Non Paris Club creditors.
Multilateral creditors – US$2.7 billion
This means we owe that much to international financial institutions.
-$1.5bn to the World Bank,
-$700m to the African Development Bank,
-$360m to European Investment Bank and
-$64m to others
We have had the above bilateral and multilateral creditors for a long time, having first defaulted in 2001 and one forgets what we actually used that money on. Unfortunately for us this has meant that we accrued high interests on the arrears.
In general, national debt is the accumulation of budget deficits. The Paris Club stepped in to help Zimbabwe with loans to help it stabilise and restore its macroeconomic and financial situation. We didn’t manage to stabilise anything but were left saddled with the massive loan arrears.
Govts love spending more than they earn and believe that they need to do this to boost economic activity. The Zim govt still is undertaking many projects which cost millions or billions in some cases. For example, the lines of credit we got from China to expand NetOne’s network, upgrade Victoria Falls airport and so on.
RBZ debt – US$5bn
The major items here are the guaranteed RBZ borrowing of $1.4bn and the blocked funds of $3.3bn.
The guaranteed borrowing refers to the “guarantees for domestic creditors for the purposes of financing agricultural inputs, grain purchase, importation of strategic commodities and development of residential areas.”
The blocked funds debt is a crazy one. See, companies operating in Zimbabwe have obligations to other parties in foreign countries. These companies may get loans from external financiers to whom they may want make repayments. They may also have foreign shareholders to whom they may want to transfer dividends.
That was (and is) a challenge in Zimbabwe and the RBZ failed to help 855 companies meet their obligations between January 2016 and February 2019. The companies remitted the equivalent ZW$ to the RBZ which now has to assume US$ obligations. When we say the RBZ assumed the debt we mean you, the citizen, are the one saddled with the obligations.
The actual claims made by the companies reached US$6.3bn and the balance is still being disputed. So, this RBZ debt may increase in the future.
It’s wild that the country that is open for business has not remitted 2016 dividends owed to foreign shareholders. The whole mess came from our chaotic currency reforms when we moved from a multi-currency model to a mono-currency one.
Compensation of former farm owners – US$3.5bn
This is classified as a contingent liability meaning it may or may not arise. Politically, no one wants to acknowledge this as a liability. Truth is, many people from both political sides are against this compensation.
They feel the land was forcibly taken from black people in the first place. They ask, why then should those who took the land by force be compensated for the upgrades they made on stolen land?
That may be but the reality is the international community, especially those that control the Paris Club and institutions like the World Bank and IMF consider it a real liability. So, if Zimbabwe paid up every other debt except this one, the institutions we want to borrow from would still consider us to be $3.5bn in debt.
I think that’s why the Minister of Finance called this a contingent liability. He knows we realistically can’t wiggle out of it but he can’t acknowledge that it’s a liability we have.
In July 2020, we signed a deal with white former farmers to pay them US$3,5 billion in compensation for improvements on farms taken over for resettlement. So, this liability really should not be classified as a contingent liability.
He calls it a contingent liability but we are working on a number of possible financing instruments and funding options. That’s not settled yet but we are told that in the meantime, the govt will continue allocating resources in the National Budget for the Interim Relief Payments to the Former Farm Owners.
The IMF warned us that our failure to compensate white former farmers will result in our public debt bulging. We are already up to our necks in arrears and interest and this is only going to sink us further.
Total national debt
When I calculated the total national debt I included the former farmers’ compensation hence why I arrived at a figure of US$17.2bn. The official figure was $13.7bn but that’s not accurate.
We have been repaying some of our loans and you will have noticed that we cleared our IMF debts. We made our first payment to the Paris Club in 20 years last year. Token payments were also made to the World Bank, AfDB and others.
Our plans to clear these debts hinge on stepping up re-engagement with all creditors. ‘Please bear with us,’ will have to be the message. We shall see how it all goes but for now, rest easy in the knowledge that you are $1,200 in debt.