Zimbabwe’s debt has accumulated over time to hit over  US$10 billion. The increase in the debt outgrew the revenue collection in the country. This comes at a time when the government is also battling a growing fiscal deficit. Such a crisis Zimbabwe is facing! Zimbabwe does not only owe some money to foreign creditors but also has a rapidly rising domestic debt. This article unravels domestic debt in Zimbabwe and what can be done to either sustain or eliminate it.

Current State of Debt

Erina  Chipungu, a researcher working on the Zimbabwean arrears clearance strategies shared her views on the country’s debt. She said Zimbabwe is in trouble if no measures are taken to reduce the unsustainable debt that can stretch for 20 years.

 “According to the IMF (International Monetary Fund) in 2017 they said that this (domestic) debt… was about 25% of the GDP (Gross Domestic Product), which is likely unsustainable,” Chipungu said.  “So what we can see is now like Zimbabwe has got an unsustainable external debt and also an unsustainable domestic debt.”

Such a nightmare, known as the domestic debt crisis, appears right in the middle of other plural challenges. Adding to the billions of external debts; the widening deficits in the government budget, trade; cash shortages, foreign currency and of late basic goods.

Analysts and researchers may differ in opinions, but what they seem to agree. Their views are in sync on Zimbabwe’s domestic arrears now being a crisis within the debt crisis. It adds up to the country’s challenges and the new government needs to do something to end the domestic debt crisis.

Background of the Domestic Debt

According to research, Zimbabwe started accruing the domestic debt during the end of the Government of National Unity (GNU)

In 2012 and 2013 the elected government expanded the debt.

“So there was like really no domestic debt, which was accrued (before 2012), but then from around 2012 that’s when we started to accrue domestic debt  and it has been growing over time and by December 2017 it was about $7,1 billion, which is also a huge chunk for a country given that we are operating in a very limited fiscal space,” Chipungu said.

“If we try to see, just to see, maybe the proportion of the domestic debt to the total debt in Zimbabwe… we can see that from 2013 only, it (domestic debt) only constituted about 7,5% of the total debt but this time it was growing and in 2017 it was now constituting about 49% of the total debt because we are saying these figures are in US dollars.”

Explaining on Zimbabwe’s debt, University of Zimbabwe Professor Tony Hawkins in his paper “ZIMBABWE: BUSINESS OUTLOOK 2018/19” says “Since 2013 government borrowing has surged to 67% of total bank credit from just 10%, crowding out the private sector.”

Causes of the Domestic Debt

The Zimbabwe Coalition on Debt and Development (ZIMCODD) a Non-Governmental Organisation (NGO) explained on the causes of the unsustainable debt. The causes raised were the causal relationship between budget deficit and the national debt has kept the country in a debt trap.

“The persistent government deficit has caused an exponential increase in total debt, which further increases the government spending as the government attempts to meet the current spending whilst paying interests on the debt,” ZIMCODD says.

“The RBZ and ZISCO Steel Debts, for instance, despite public outcry and contestation, have been assumed by the state. By doing this, the government simply shifted the debt burden from the institutions in question to the state thereby worsening the unsustainability of the national debt at a time where the creditors are holding on to full repayment of outstanding arrears as a precondition for debt relief.”

Hawkins says, “Over $1 billion of unbudgeted spending was for electorally-driven subsidy programmes (command agriculture, maize and wheat).”

What Needs to Be Done

The big question remains, what needs to be done? Hawkins believes that the government needs to negotiate with the IMF a programme similar to the Economic and Structural Adjustment Program (ESAP) in 1990/1 including deep cuts in government spending and privatization. The professor calls such a programme ESAP Two.

The UZ lecturer also gives a multi-stage approach. It is to clear the $2 billion in arrears owed to multilateral lenders- World Bank, African Development Bank, and other lenders.

The plan includes borrowing the funds privately within 6 months.

“Once an IMF programme is passed by the IMF Board, Zimbabwe would go to the Paris Club (donors) for debt restructuring and debt relief,” Hawkins says. “Even with debt relief, the debt position – especially domestic debt, which cannot be forgiven – would remain precarious.”

However, ZIMCODD, which voices against ESAP, calls for external debt cancellation promised if Zimbabwe does not have the capacity to pay off.

Think-tank organization credits a united call for debt clemency. It is sounded high in government, the private sector, media, and civil society.

“Zimbabwe deserves an opportunity for a fresh start without shouldering a debt burden in consideration of the crippling IMF imposed ESAPs and the inherited $700 million colonial debt from the Rhodesian government among other debts that were accumulated under the regime of the former President Robert Mugabe.” ZIMCODD says.

The think-tank also calls for a comprehensive debt audit to ascertain the extent of the debt. Moreso, how it was used or misused and create a basis for total debt cancellation.

Forecasting on Zimbabwe, Professor Hawkins’ graph shows Zimbabwe’s domestic debt reaching over $10 billion this year.

Chipungu said, “If we look at maybe the sustainability of Zimbabwe’s external debt using the IMF (International Monetary Funds) debt sustainability analysis, we can see that maybe over a 20 year period from 2017 to 2037 it just indicate that Zimbabwe… will continue in an unsustainable debt even for the next 20 years.”

What the Government is Doing

The government has introduced austerity measures which reduce government spending and increase tax revenues.

On tax revenues, Professor Mthuli Mcube the Finance Minister introduced the 2 cents per dollar transaction. However, it has been unpopular with the country’s citizens.

The government is additionally planning to cut the civil service. The sector accounts for more than 90% of public spending which will reduce government spending.