Debt management office ‘a hoax’

via Debt management office ‘a hoax’ July 11, 2014 by Taurai Mangudhla

ZIMBABWE’S formation of a debt management office is a hoax masked as government commitment towards clearing its arrears and will not save the country from the current debt crisis, local economists say.

Zimbabwe’s debt overhang is among factors inhibiting the country’s attempts to secure fresh foreign funding.

Last week, Finance minister Patrick Chinamasa announced Cabinet on June 24 approved principles to set up statutorily the Zimbabwe Debt Management Office (ZDMO) responsible for debt management operations relating to government debt, lending and guarantees, local council debt and public enterprise debt.

This comes as Chinamasa is leading a 20-member inter-ministerial delegation to China during which he hopes to convince the Chinese to provide financial assistance to fund government‘s economic blueprint, the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (ZimAsset). Zimbabwe needs US$27 billion to fund ZimAsset.

Chinamasa said the ZDMO will, among other things, maintain a comprehensive and credible computerised database of public and publicly guaranteed external debt.
He said the ZDMO would also monitor how the country incurs debt with priority given to infrastructure projects.

A centralised debt system will be created and see all transactions for public and publicly guaranteed debts going through Chinamasa’s office.

Economists John Robertson said formation of the debt office was a waste of time as Zimbabwe requires a shift in both policy and mindset to deal with its debt.

“What we need to do doesn’t require an office to think, but someone to point out in what ways government discouraged production and give solutions so that we get back to work,” Robertson said in an interview.

“This doesn’t need an office but simply a change of policy. If they are going to put an office it should be able to change policies.”

The economist argued government should instead revive productive sector and create capacity to repay its debt.

“People who used to produce so much are in mining and agriculture so we need to restore production,” Robertson said.

Econometer Global Capital head of research Takunda Mugaga said a debt office was ordinarily there under the Ministry of Finance and will not achieve much under current conditions.

“It could just be our intention to deepen relations with the IMF (International Monetary Fund) under the Staff Monitoring Programme to say look guys we are doing something and you can see it,” Mugaga said.

“It’s a good strategy, but the problem is you cannot talk of managing debt when you are still continuously immersing yourself in debt,” he said, adding “given the appetite for this country to spend money, I do not see it yielding any results.”

The economist said government needs to cut employment costs and reduce expenditure on luxury vehicle for top ranking officials as one of the ways to manage growing debt.

As of December 2013, Chinamasa said Zimbabwe’s external and internal debt, dating back to before 1980 when the country attained its independence, amounted to US$9,9 billion. Chinamasa said most of the debt relates to government guarantees on farm dam construction around the 80s and 90s.

The US$9,9 billion comprises US$8,9 billion external debt and US$994 million total domestic debt. Public external debt comprised 56% of total external debt.
RBZ domestic debt which will soon be assumed by government amounts to US$754 million.

Total public and publicly guaranteed external debt stood at US$6,96 billion and was made up of US$5 billion public external debt, US$1,4 billion publicly guaranteed external debt and US$596 million Reserve Bank of Zimbabwe external debt to bring the private sector non-guaranteed debt to US$1,96 million, US$1 billion being long to medium term and the balance short term.

The combined debt was 54% of GDP, 157% of exports and 186% of revenue.