HomeLocal NewsParly must play a significant role in loan contracting

Parly must play a significant role in loan contracting


Last week saw Parliament being recalled to ratify a concessional loan agreement between the Zimbabwe government and the Export-Import Bank of China to finance the construction of the National Defence College in Harare.

The Constitution requires that such agreements concluded with foreign governments or international organisations can only enter into force upon approval by Parliament.

I will not discuss the merits or demerits of the loan agreement, but focus on the minimal role of Parliament in the whole loan contraction process.

Parliament is only called upon to participate at the tail-end of the process, which reduces the legislative arm of the State to a rubber-stamping role.

Zimbabwe’s debt burden is extremely high and unsustainable. Total domestic debt is estimated at $1,2 billion while total external debt is estimated at $6,3 billion.

This must be a matter of grave concern for MPs as the total debt is more than our gross domestic product of about $5,6 billion.

It is unfortunate that there are no elaborate provisions in the Constitution dealing with public debt.

Section 104 only talks about debt charges incurred by the government being charged to the consolidated revenue fund, which can be defined as the Treasury purse.

With a total budget of $2,3 billion in 2011, there is therefore no way Treasury can deal with this serious debt problem.

High and unsustainable debts have proved to have a high opportunity cost for developing countries, including Zimbabwe.

The opportunity cost arises in that the country, for the sake of servicing its debts, would have to forgo financing of development plans in social and other sectors, for example health, education and infrastructure.

These sectors are in a desperately poor state. Their adequate financing would therefore have a significant impact on poverty alleviation.

It is the Public Finance Management Act (PFMA) that has more provisions on debt contraction and servicing.

Part VI deals with loans, guarantees and other commitments. Section 93 repeals the State Loans and Guarantees Act Chapter 22:13 and the Audit and Exchequer Act Chapter 22:03.

While there are some attempts in the Act to improve the loan contraction process, these are minimal meaning that the State Loans and Guarantees Act dispensation still largely prevails.

The PFMA empowers the President to authorise the Finance minister to borrow for any purpose the President considers expedient with the limitation being that borrowing within Zimbabwe can only be up to 30% of the general revenues of the country in the preceding financial year. This was the same position as in the State Loans and Guarantees Act.

These provisions however give an excessive amount of discretion for only two people. The suggestion would be for Parliament having the final say in the decision to enter into a contractual loan agreement.

The public accounts committee and the budget and finance committee could take the lead in that process. The involvement of Parliament in loan contraction means the ratification process becomes a mere formality.

Section 54 of the Act allows the minister to borrow on such terms and conditions as he may fix. The conditions are up to him and there is no limit to this discretion.

In my view, the failure to establish legislative ground rules weakens the State’s negotiating position such that the loan contraction process would merely follow principles and rules decided by the (international) lenders, who already generally have the upper hand by virtue of their financial strength.

The current policy and legal regime on loan contraction lacks a clear consultative framework with direct beneficiaries such as civil society, non-governmental organisations, the private sector and the general public.

Other countries have set up a loans and guarantees commission that works hand in hand with the appropriate portfolio committee of Parliament to ensure broad-based participation before a loan is contracted.

The minister has virtual absolute power (with consent from the President) as regards the giving of guarantees in terms of Section 61 of the Act, almost the same provision that prevailed under the State Loans and Guarantees Act regime.

While the minister can exercise this power with the consent of the President, additional involvement of an appropriate committee of Parliament such as the budget and finance committee would have been more ideal.

The minister has an obligation under Section 71 of the Act to lay before the House of Assembly a statement relating to that guarantee on any of the first seven sittings when the House of Assembly first sits after the guarantee is given.

This again means Parliament playing a rubber-stamping role. The loan guarantee mechanism could have been improved by ensuring that the Legislature is given power to approve the guarantees before they are given.

It is agreeable that some of the main causes of the debt crisis in many African countries are poor debt policy, a weak institutional and legal framework and lack of accountability, transparency and inclusiveness in the loan contraction process.

The process by which debtor countries agree to take on the terms and conditions for loans need to be opened up to scrutiny by citizen groups and their representatives in Parliament and other formal democratic structures.

This will help to avoid lending and borrowing mistakes, which in the past have led to the build-up of unsustainable debts that now have to be paid off at the expense of financing the Millennium Development Goals.

John Makamure is the executive director of the Southern African Parliamentary Support Trust writing in his personal capacity. Feedback: john.makamure@gmail.com

Recent Posts

Stories you will enjoy

Recommended reading