TATIRA ZWINOIRA LEGAL think-tank, Veritas says the government is sinking deeper into a debt trap through its agriculture financing model, which has massively contributed to the current mess in the sector.
Last month, the International Monetary Fund (IMF) warned against rising debt made worse by the Treasury’s assumption of a US$3,77 billion debt in blocked funds and a commitment to paying US$3,25 billion to white former farm owners.
For these reasons, along with the central bank’s quasi-fiscal activities and increased issuance of government securities to finance expenditure, debt is estimated at over US$20 billion.
Driving the public debt is the money that the government has spent funding the agricultural sector through command agriculture.
“The government has put billions into resuscitating agriculture production, but statistics in the Statement of Public Debt confirm this has not helped Zimbabwe, as over the years it has continued to import maize, wheat and soya at a great cost to the taxpayer,” Veritas said in its latest economic governance analysis on agricultural financing.
“Private debt by farmers is being guaranteed by the State, and if farmers default, as most of them seem to do, the public has to pay their debts. In simple terms, some people (farmers) are using public finances for personal profit.
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“The awarding of a few companies’ broad powers to purchase and distribute agriculture inputs raises questions of state capture unless the processes are done transparently and the bidding for such tenders is done openly and can be scrutinised by the public,” it said.
Veritas said financing the command agriculture programme, in particular, had disproportionately bled Zimbabwe’s finances with little commensurate benefit to the public.
According to the Treasury, the domestic debt maturity profile reflects the short-term nature of the domestic debt securities or Treasury Bills, as investors of government securities have a preference for short term instruments to hedge against inflationary pressures.
The maturity profile reflects the government’s refinancing risk, as ZW$31,3 billion (US$196,43 million) (81%) of outstanding domestic debt securities is maturing this year, with a corresponding interest bill of ZW$5,1 billion (US$32 million).
This means the Treasury will have to pay nearly ZW$37 billion (US$232,2 million) to service the matured Treasury Bills that were used to fund the agricultural 2020/21 season.
“The Treasury has no capacity to repay this loan and it seems the debt will have to be rolled over and new bills issued. This will be expensive,” Veritas said.
Last year, Treasury guarantees worth ZW$20,21 billion (US$126,83 million) were issued to the Agricultural Marketing Authority (AMA) to purchase grain with the securities expected to expire this year.
In 2020, the government issued domestic guarantees, including to private companies under the Covid-19 Economic Recovery and Stimulus Package, amounting to ZW$24,2 billion (US$151,87 million) and US$15,2 million.
The guarantees were issued to Agricultural Finance Corporation (AFC), formerly Agribank, Silo Food Industries, Infrastructure Development Bank of Zimbabwe (IDBZ), and CBZ Agroyield (winter wheat) which Treasury reported were all on track.
Veritas called for the command agriculture programme to be reviewed with the aim of making individual farmers responsible for their debts.
The command agriculture programme was first started in 2015 as a way to improve agricultural production, following the land reform programme.