High domestic debt fuels cash shortages

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Uncontrolled spending has seen the domestic debt reaching $3,7 billion in October amid warnings by analysts the runaway debt is fuelling cash shortages.

BY BUSINESS REPORTER

According to Treasury data, the domestic debt has ballooned from under $500 million in 2013 to the current figures, raising questions on the ability of government to live within its means, as it has been borrowing from the domestic market through issuing Treasury Bills.

From 2009 to 2011, government had no domestic debt, as then Finance minister Tendai Biti pushed for a balanced budget.

The bulk of the debt (45%) has gone towards budget financing.

In his 2017 National Budget statement, Finance minister Patrick Chinamasa said the increase in domestic debt, post-2013, reflects government’s assumption of Reserve Bank of Zimbabwe debt, securitisation of suppliers’ arrears and, recapitalisation of the Reserve Bank, Infrastructure Development Bank of Zimbabwe, POSB, Agribank and other public institutions.

He said the government would focus on “containing the growth in domestic debt in order to ensure fiscal sustainability, as well as providing fiscal space for capital expenditure”.

An economist with a leading commercial bank told NewsDay yesterday that the domestic debt had reached unsustainable levels and was a major source of the economic imbalance.

He said the government had to seriously live within its means to arrest “runaway domestic debt”.
The economist said the $400 million deficit in the 2017 National Budget was too high and did not inspire confidence.

In the 2016 National Budget, deficit was projected at $150 million, but had breezed past the $1 billion mark by end of October.

“Due to the serious imbalances in government fiscus, this has contributed to the liquidity and cash shortages. Focus has been diverted from productivity to issues of addressing cash shortages,” the economist said.

In October, the World Bank said banks’ purchase of Treasury Bills and public sector borrowing may have triggered liquidity shortages prevailing in the market.

“Banks’ purchases of TBs and other public sector borrowing may have contributed to liquidity shortages and crowded out bank lending to the private sector. Faced with cash shortages, banks were unable to honour demand deposits,” the bank said in a report of Macro Poverty Outlook for Zimbabwe.

The World Bank said fiscal adjustment in the form of a reduction in the public sector wage bill was needed to prevent further accumulation of government borrowing from the banking system.

“Without a fiscal adjustment and/or access to external credit through arrears clearance, government will have to borrow from banks. This is likely to result in an accumulation of public debt, diminishing investor confidence and limiting Zimbabwe’s growth prospects,” it said.

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