The Sunday Mail
Current spirited efforts by Government to settle the $14 billion external debt that has saddled and handicapped the economy for too long must be applauded and supported by all means.
This is a game changer in more ways than one.
Debt has been one of Zimbabwe’s biggest headaches and has even caused other big and small attendant diseases that have afflicted the economy in the last few decades. The economy has largely been limping and efforts to treat some of the symptoms have not been long-lasting.
Hence, the decision to get to the root of the problem is exactly what the doctor ordered. The huge debt is one reason Zimbabwe has struggled to attract finance facilities while, in other cases, it has been hugely politicised. Of course, everything is largely about politics and its many facets and faces.
Zimbabwe owes multilateral and bilateral bodies that include the International Monetary Fund, the African Development Bank (AfDB), the World Bank and the Paris Club. AfDB president Dr Akinwumi Adesina and former Mozambican President Joacquim Chissano are spearheading the arrears clearance and debt resolution strategies. The process is looking up.
Research shows that debt can have both positive and negative effects on a developing country, depending on how it is managed and used.
On the positive side, debt can provide a source of financing for investment in infrastructure, education, health care and other areas that can help promote economic growth and development. This can lead to increased productivity, higher incomes, and improved quality of life for citizens.
However, if debt is not managed carefully, it can also have negative effects. High levels of debt can lead to debt distress, where a country is unable to service its debt obligations, which can lead to default or the need for a bailout.
This can then lead to a loss of confidence in a country’s economy, which can cause a drop in investment and economic growth. Additionally, debt can lead to a cycle of dependency on borrowing, where a country becomes unable to repay its debt and is forced to borrow more to service its existing debt, leading to a vicious cycle of debt and economic instability.
“Moreover, debt can also lead to a situation where a developing country is forced to prioritise debt repayment over other important areas of spending such as health, education, and infrastructure development. This can limit the ability of the country to invest in its people and economy, leading to stagnation or even decline,” said one researcher.
Round Four of the High-Level Debt Resolution Forum held in Harare last week achieved great success and all parties are upbeat Zimbabwe will soon be back on track. Efforts by Zimbabwe are in line with recommendations by the United Nations Conference on Trade and Development, which has been advocating debt resolutions so that developing countries can achieve real growth.
It reports that between 2019 and 2021, debt levels as a share of gross domestic product (GDP) increased in more than 100 countries by about $2 trillion but emphasised this was not a result of poor policies.
“This has not been a result of bad behaviour but systemic shocks.”
UNCTAD advocates creation of multilateral legal frameworks for debt restructuring and relief to facilitate timely and orderly debt crisis resolution.
“As debt burdens rise, developing country governments end up in a vicious cycle, unable to invest and achieve the Sustainable Development Goals and growing their economies, making it harder to pay debts,” said UNCTAD.
Zimbabwe can relate but the Second Republic is determined to change the course. Debt resolution is one of the key pillars of the National Development Strategy 1 (NDS 1).
The economic policy intends to maintain public and publicly guaranteed external and domestic debt to GDP ratio below 70 percent. As of 2019, it was at 80,8 percent of GDP.
“Zimbabwe is in debt distress, with unsustainable public and publicly guaranteed total external debt and large external debt arrears.
“Debt resolution with creditors through the clearance of external debt arrears and debt relief will open new lines of credit for the economy, which is critical to the achievement of Vision 2030 goals.
External debt arrears clearance and debt relief to restore sustainability will be considered in line with progress made through Government’s engagement and re-engagement with the international community.
“Managing new debt commitments will require a coordinated approach, in line with Public Debt Management Act provisions limiting the Debt to GDP ratio to 70 percent. Debt Management over the NDS1 period will be guided by a Medium Term Debt Strategy and the Debt Sustainability Analysis indicators.
“The debt strategy will focus on maximising access of concessional financing. This debt strategy will ensure consistency between the capacity to service the debt and minimising costs with the objective of fiscal consolidation.
“Non-concessional borrowing will only be contracted for commercially viable projects with a high rate return, such as infrastructure projects.
“The debt strategy will also incorporate private sector driven financing options to ensure debt sustainability,” reads the NDS 1 economic blueprint.
We are, thus, excited about the President’s impending travel to Egypt for the AfDB annual meetings, where Zimbabwe’s debt resolution strategy is set to gather momentum.
He is set to hold meetings with creditor nations.
A special round table on Zimbabwe’s arrears clearance and debt resolution is scheduled to take place during the meetings. This can only augur well for this country.
Zimbabwe and its creditors are pursuing a three-pronged approach.
It focuses on implementation of economic reforms, recalibration of governance systems and commitment to compensate white former commercial farmers on improvements made on farms while resolving cases covered by Bilateral Investment Promotion and Protection Agreements that were affected by the land redistribution exercise.
All these efforts will surely yield results for Zimbabwe. President Mnangagwa and his team must be applauded for actively pursuing strategies to resolve the debt situation.
This strategy bodes well for Zimbabwe’s economic development and the desire to improve the standard of living. The debt resolution strategy gives impetus to Vision 2030.
In God I Trust!
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