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Prospects for improved debt management in COPAC's draft constitution
Dakarayi Matanga, African Forum and Network on Debt and Development (AFRODAD)
June 30, 2012

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Introduction

The ongoing constitutional reform process in Zimbabwe has opened up immense opportunities for the country to create a new framework for sound economic management. An area where this transformation is urgently needed, and will be greatly felt is public finance management, particularly in administration of public debt. An analysis of the public finance framework of the draft using various benchmarks for sound debt management shows that the proposed draft has some improvements on the current constitution in terms of enhanced accountability, transparency and inclusiveness in the loan contraction and debt management process, with scope for improvement. This will benefit citizens, who ultimately owe the public debt and pay for it through the taxes they pay, as well as suffer its negative impacts in human development terms when it becomes unsustainable.

The state of play with Zimbabwe's external public debt

The government of the day is seized with implementing various programmes targeted at economic recovery, since it was sworn in 2009. Currently, they are focusing on the Medium Term Plan (MTP), which needs approximately, US$9 billion total investment to meet its growth and development targets between 2011 and 2015. Prior to that there was the Short Term Economic Recovery Programme (STERP), whose total resource requirements were in excess of US$ 8 billion. At the time STERP was in force, the Finance Minister said US$ 45 billion is needed to get the country back to its peak level of 1996-971. On the other hand, the African Development Bank (AfDB) also says Zimbabwe needs an estimated $14 billion for rehabilitation and upgrading of infrastructure. For various reasons government does not have the capacity to generate adequate resources internally to activate these programmes, hence the need for external support in the short to medium term.

Unfortunately, Zimbabwe owes bilateral and multilateral creditors various amounts, which are beyond its internal capacity to repay at present. The external debt position is projected to grow to more than US$8 billion this year (118% of GDP). The Ministry of Finance (MoF) is currently engaging its creditors in a process of verifying actual amounts owed by Zimbabwe, so this figure should be put in its proper perspective. Generally, the country has been in default on its external obligations for the greater part of the last decade. The bulk of this debt is therefore made up of interest and arrears. Creditors have insisted on repayment of outstanding arrears and implementation of specific reforms before Zimbabwe can receive debt relief and more aid. This means that the unserviceable debt stands in the way of full economic recovery of the country, let alone investments in infrastructure and social sectors. To address this problem, the government of Zimbabwe (GoZ) launched the Accelerated Clearance, Debt and Development Strategy in March 2012 for a debt resolution aimed at inclusive growth, job creation and poverty reduction.

Despite these efforts however, GoZ had started borrowing again at non-concessional terms, on projects which stakeholders deem to be of questionable national benefit. The IMF in its report on the Article IV consultations which ended on March 30 2011 raised concern with the fact that GoZ was now going into non-concessional borrowing, which they say is not affordable and could complicate future external arrears clearance. According to them:

Recent borrowing and guaranteeing of non-concessional loans by the government has intensified debt distress. Zimbabwe is not likely to reach debt sustainability even taking into account increased receipts from the country's mineral resources and assuming a significant strengthening of policies in line with staff.

Similar concerns with this borrowing have also come from Parliament. It is clear from reports that the Legislature which ratified these loans was not involved in the negotiation process. Furthermore MPs raised concerns with the terms of these loans, as well as the use of Parliament as a rubber stamping mechanism.

It is now increasingly agreed that although external causes such as the lending policies of creditors contributed greatly to the debt crisis in many African countries, internal factors are equally important. Studies have shown that the causes of this problem are also attributable to poor debt policy, a weak institutional and legal framework and lack of accountability, transparency and inclusiveness of the involved institutions in the loan contraction process. Part of the policy and institutional framework for debt management is captured in the constitution; hence the important link between such concerns with the current process to amend the country's supreme law.

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