The exact debt stock is debatable as official figures 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 suppliers1.
With the 2009 Short Term Emergency Recovery Plan (STERP) having identified a resource gap of about 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. If 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 it boasted back in 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 2015.
How to remove the albatross
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 IG 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 (HIPC), 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 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 socioeconomic distress, activists and civil society organisations 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.
A debt audit
Side by side with this, there is a strong view that neither debt cancellation (while desirable) nor new loans (which are necessary) should be extended unless the 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 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 it is now more than 70 years old, helps to bring clarity to today’s complicated Third World debt situation, where innocent Southern citizens end up paying while corrupt and negligent borrowers and lenders get away scotfree.
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.” (Alexander Sack, 1927).
Finally, there is need for an imaginative and sustainable debt clearance strategy, which combines re-negotiating repayments ¬ including negotiating a rescheduling of and a moratorium on some repayments ¬ 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 HIPC initiative in its classic form – especially as evidence from Zambia, Mozambique, Tanzania and Uganda among others, does not provide a necessarily favourable picture of the impact of HIPC 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, under new economic governance rules, with brighter prospects.
The huge resource gap facing Zimbabwe requires it to strategically invest all of its rich natural resources, including diamonds, gold, and platinum, into national economic recovery and long term development and not to mortgage the resources of future generations to repay huge debts that were acquired under questionable circumstances. – This was first published by OSISA (www.osisa.org)Post published in: News