Mthuli calls for urgent action on domestic debt

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GOVERNMENT’S domestic debt has escalated by over $9 billion in the past six years largely on civil servants salaries and other recurrent State expenditure.

Presenting a mini-fiscal review on Monday, Mthuli Ncube, Zimbabwe’s Finance minister, said the high debt called for urgent reforms to control it.
“The high deficit has ignited expansion of domestic debt from $275,8 million in 2012 to current levels of $9,5 billion against $7,4 billion external debt. This brings total public debt to $16,9 billion,” he said.
The huge debt will create high taxes in future if not contained and with a population of 15 million it means every Zimbabwean owes financial institutions $1,126. Even a child born today will be in debt.
“Treasury is accelerating the process of re-engagement with international partners and creditors in order to clear arrears on external debt,” Ncube said.
Following the roadmap developed in Lima, Peru, Ncube said Treasury was in dialogue with the international financial institutions who are government’s creditors, seeking to eventually clear the $2,5 billion owed to the African Development Bank, the World Bank (WB) and the European Investment Bank.
“Simultaneously, Treasury is engaging key Paris Club creditors with a view to restructuring $2,8 billion owed to them. Such debt resolution will help restore the international credit standing of Zimbabwe, resulting in improved access to new external credit lines and investment flows,” said Ncube.
Negotiation on this process will continue at the WB/International Monetary Fund annual meeting in Bali, Indonesia from October 10 to 14 this year.
Ncube said the challenges Zimbabwe was facing were however not insurmountable but called for “urgent reforms”.
“It cannot be business as usual. Bold decisions need to be taken on the reforms front in order to stimulate growth and sustainable development. At the centre of the above challenges, is the unsustainable high budget deficit. This challenge has had destabilising implications not only to the financial sector but to the rest of the economy,” he said.
The financing of the deficit was mainly through domestic borrowing with the use of instruments such as treasury bills, overdraft with the central bank, cash advances from central bank, arrears and loans from the private sector.
“Such financing mechanisms are crowding out the private sector, hence constraining production. This also increased money supply in the economy, translating into exchange rate misalignment and inflationary pressures now at 4,9 percent, as at August 2018,” Ncube said.
The Treasury boss said the overdraft with the central bank stands at $2,3 billion, as at August 31, 2018, well above the statutory limit of $762,8 million.
“Consequently, government will effectively limit the use of the Reserve Bank’s overdraft facility and curtail the bank’s advances to government in line with section 11(1) of the Reserve Bank Act [Chapter 22:15], which states that borrowing from the Reserve Bank shall not exceed 20 percent of the previous year’s government revenues at any given point,” Ncube said. newsdesk@fingaz.co.zw