If the government has a commitment to spend more money than it collects in taxes, it has to source the funding from elsewhere. One source is borrowing.
The government can borrow from individuals and organisations within the country – domestic debt – or incur foreign debt from outsiders. The government can also source funds by selling national assets, as they do with diamonds and have done with Ziscosteel
Governments change but debt stays like a stubborn sore until we pay it or the lender decides to write it off. Borrowing by governments is essentially a way of taking money from lenders with a promise that they will make us citizens pay it through some kind of tax at a later stage. When governments borrow, it is people who get into debt.
As an example, if the government borrows $13m, each and every one of 13 million Zimbabweans incurs a debt of $1 each.
Zimbabwe’s external debt is currently estimated at around $7.5b. This means that every Zimbabwean owes roughly $538 to ‘foreigners’.
Domestic debt
Other than this foreign debt, we citizens also have domestic debt. There is a huge mystery around our domestic debt. It is generally understood that the country had a mammoth mountain of domestic debt at the time the current government came into office when the GPA was signed. This debt was in ZW$ but it seems to have done a disappearing act.
Some reports have suggested that the debt was frozen but there are huge questions that still need answering because frozen debt will thaw one day and like a ghost from the past will haunt us. There is the question of whether this frozen debt is bearing interest and at what exchange rate the debt was frozen at – given the fact that Zimbabwe had a series of different rates until the valueless dollars was finally abandoned.
The rate of exchange at which domestic date was frozen is very important because it tells how much each Zimbabwean owes in US dollars to the domestic lenders. As an example, assuming we owed ZW$39m. If it is frozen at one Zimbabwe dollar to the US$ the total debt would be US$39m. If however it is frozen at Z$3 to one US$ it becomes a total debt of US$13.
We need to know
The uncertainty surrounding how the domestic debt was frozen is such that some estimates suggest that we might owe about US$50billion which roughly equates to each Zimbabwean having debts of roughly $4000. For a country where wages are averaging $200 a month this debt, together with foreign debt that is so high, it becomes difficult to see how we can repay it. The amount of debt we owe will determine whether we will have enough to build hospitals and send our children to school.
The debt mystery is compounded by the fact that the government does not talk about it. Because citizens have to pay the debt, it is essential that we know how much that debt is and what the terms are and what was the purpose of borrowing.
What compounds our misery is the fact that a lot of the domestic debt was incurred on expenditure that we did not necessarily agree with. Examples that come to mind are the salaries of 75000 ghost workers and training of militia that came and clobbered people in 2008.
If we had been asked whether we agree with the government borrowing on our behalf to spend the money funding an illegal brigade that would come and terrorise us, I am sure that answer would have been a resounding NO.
There is also the murky business around the borrowings by the reserve bank that has not been put to proper scrutiny. Despite the lack of transparency about existing domestic debt, the government is still trying to borrow further through the Diaspora bond. Maybe the potential holders of the Diaspora bond should seek to understand the indebtedness of those that they want to lend to?
Post published in: News