ZIMBABWE’S debt to GDP ratio is estimated to exceed the statutory limit of 70% this year due to excessive borrowing from the domestic market, Treasury has warned, imploring the need for fiscal consolidation.
BY NDAMU SANDU
Government has failed to eat what it has gathered resulting in the widening of the budget deficit. Last year, the budget deficit was $1,4 billion, representing over a third of the $4 billion National budget.
The deficit has been financed from the domestic market through the issuance of Treasury Bills (TBs). Government has also issued TBs and Treasury bonds to expunge the Reserve Bank of Zimbabwe (RBZ) legacy debts and to cover government including drought-related expenditures and for the Zimbabwe Asset Management Company, a special purpose vehicle created to free the balance sheet of banks of bad debt.
Section 11(2) of the Public Debt Management Act requires that the total outstanding public and publicly guaranteed debt as a ratio of GDP should not exceed 70% at the end of any fiscal year with Treasury warning that the threshold would be surpassed “in view of the current borrowing trends from the domestic market”.
This underpins the urgency for containing the fiscal deficit,” Treasury said in a 2018 pre-budget strategy paper.
The ratio was 70% last year and is projected to quicken to 78% in 2017 and then 81% in 2018 before tapering off to 78% and 74% in 2019 and 2020 respectively.
The public and publicly guaranteed debt is projected to end the year at $13,12 billion, accelerating to $14 billion next year, $14,6 billion in 2019 and $14,8 billion in 2020.
The high debt to GDP ratio is also above the 60% Sadc threshold, to which Zimbabwe assented to through ratification of the Finance and Investment Protocol. Treasury said it was necessary that Zimbabwe gradually reduce the public debt-to-GDP ratio to levels consistent with the Sadc regional best practice threshold of under 60%.
Treasury said RBZ’s lending to the State had exceeded the 20% threshold stipulated by the Reserve Bank Act reaching 27% in 2006 due to “funding requirements for the importation of grain”.
“In the absence of sustained fiscal discipline and strong expenditure containment policy measures, the pointers are of a worsening position over the period 2018 to 2020.”