‘Ballooning debt cause for concern’

Source: ‘Ballooning debt cause for concern’ – NewsDay Zimbabwe October 27, 2017

THE Parliament Budget Office (PBO) has expressed concern over the country’s ballooning debt, which is now above $13 billion.

BY VENERANDA LANGA

The development is a violation of provisions of the Debt Management Act, which stipulates that the government debt should not exceed 70% of gross domestic product (GDP), with the debt now estimated at 79%.

The country’s GDP was estimated at $16,3 billion at the end of last year.

In their 2017 first half budget performance and outlook report, the PBO said the government had been increasing its reliance on the domestic market to finance the budget deficit of $535 million, resulting in a large outlay of Treasury Bills worth $2,5 billion currently on the market.

“As at March 31, 2017, the country’s public debt stood at $11,6 billion or 82% of GDP, of which $7,5 billion or 53% of GDP is external debt, while $4,3 billion, representing 30% of GDP, is domestic debt, and of the $7,5 billion debt, $5,2 billion is in arrears,” the PBO report read in part.

“On the other hand, the domestic debt has also increased in the second quarter due to continued issuance of Treasury bonds to finance government expenditure, and this leaves the country debt a figure above $13 billion.”

On the 2017 budget deficit, the PBO said as at August 31, 2017, the budget deficit could actually have accumulated to a figure beyond $1,5 billion because the government owed $1,7 billion worth of goods and services to various line ministries and departments.

“Government has been increasing its reliance on the domestic market to finance the budget deficit and this explains why a large outlay of Treasury Bills (TBs) worth $2,5 billion are currently on the market.”

The PBO described TBs, which have been used to finance the budget deficit, as fictitious money, adding the heavy reliance on TBs was also hurting banks.

Before, then Finance minister Patrick Chinamasa was transferred to another ministry, he told Parliament that the government had issued TBs worth $2,5 billion to erase legacy debts and capitalise loss-making State enterprises and parastatals, among others.

“The stock of public debt is violating provisions of the Debt Management Act, which provides that outstanding government debt as a ratio of GDP should not exceed 70% at the end of any fiscal year. Moreover, the country runs the risk of defaulting, as the deficit widens, thus putting banks in a precarious position.”

The PBO said TBs held by commercial banks were now unsustainably 1,7 times the level of bank equity capital, up from 1,3 times at the end of 2016.

“The TBs are creating more fictitious money than what is necessary. With commercial banks becoming increasingly fearful and rightfully, so about the potential for TB default, banks have smartly preferred to hold onto physical United States dollars, limiting withdraws and international card transactions.”

COMMENTS

WORDPRESS: 2
  • comment-avatar

    It is just as if the obvious is to clear for them. I is impossible to go on inventing money for ever, indeed one could contend beyond now.
    Money is not a piece of paper, digits in the mind of a computer it is what you/state/business is really worth.
    In the west we have this problem with individuals, they borrow on credit cards etc, buying even more ‘toys’ thinking they have money to spend/use etc. But they do not have this; all they have is a debt. Somebody wants in the end, their money back plus interest. Stop living above your status, do not spend what you do not have. Stop making rash promises and promoting stupid ideas. Old phrase ‘cut your cloth to fit…’ I would speculate that already its gone too far to retrieve.

  • comment-avatar
    Nyoni 5 years ago

    An independent local overseer involving ethical people should be established to monitor all government finances . Make the hard decisions to make ministers or CEOs answerable for their actions. Unfortunately Bob is in the way thus the reason and others to why it is time for him to exit and leave the country to be handled by more capable people. You have failed Bob and ZanuPF. Time to go .