via ‘Govt mortgaging Zim’s future’ – DailyNews Live 7 November 2014 by Kudzai Chawafambira
HARARE – Zimbabwe’s government is mortgaging the country’s future by using its resources to secure offshore loans, a renowned economist has said.
The hard-pressed southern African nation recently brokered infrastructure and platinum deals with China and Russia respectively.
Tony Hawkins, an economist, said “in this process, Zimbabwe’s future is being mortgaged because servicing and repaying these loans… will absorb a large and growing chunk of future exports.”
“This will take the debt burden to an even more unmanageable 135 percent of Gross Domestic Product (GDP) by 2018,” he said in a column published in a local weekly.
He said Zimbabwe’s desperation for economic relief has forced government to try and borrow more from China and Russia.
This comes as President Robert Mugabe visited China in September to seek financial bailout.
Zimbabwe signed cooperation deals with the Asian economic giant, most of them focused on the energy, agriculture and telecommunications sectors. During the same month, government and Russia signed several agreements which will culminate in a $3 billion platinum project in Darwandale, 70km north- west of Harare.
The deal is between Pen East Investments, a Zimbabwean company, and Afronet, a consortium of three Russian partners, to form Great Dyke Investments (GDI), which is developing the Darwendale project.
Hawkins noted that foreign investors have been reluctant to lend Zimbabwe because of its poor credit rating.
The country is saddled by domestic and offshore debts amounting to nearly $10 billion.
He indicated that the only way to unlock the country’s economic potential was to attract foreign direct investment.
“Economies do not grow without investment. Since dollarisation, investment has averaged only 17 percent of GDP. For the economy to grow at the targeted six to seven percent rate, investment of at least 30 percent of GDP is needed,” Hawkins said.
He added that inadequate investment was being funded offshore to the tune of 28 percent of GDP each year therefore the country needed to adapt to the fast changing world economy by re-balancing and restructuring.
“The country cannot go on living outside its means — over-consuming, under-saving and under-investing,” he said.
Zimbabwe’s FDI inflows remain stagnant, with the country receiving
$400 million in 2013, unchanged from 2012, according to the latest United Nations Conference on Trade and Development (Unctad) report.
Since 2009, China has extended $1 billion in loans to Zimbabwe, with trade between the two countries increasing.
Finance minister Patrick Chinamasa, however, noted that although China made commitments to Zimbabwe, the Asian giant was not offering any budgetary support.
“They are helping us with bankable projects not budgetary support.
“In fact, no country provides budgetary support because that would mean they directly dictate terms of our economy to us,” he said.
It remained unclear how a broke government would repay China, and how the deals would ease the suffering of Zimbabweans blighted by shrinking incomes and failing social services.
Zimbabwe during the first half of the year paid an unbudgeted $180 million towards loans owed to China.
Chinamasa recently said the payment is part of Zimbabwe’s effort to improve relations between the two countries.
“In the first six months of this year, we have had to cough up $180 million, which was not in the budget, just to make ourselves look good,” he said.
Chinamasa even admitted that international lenders were reluctant to advance Zimbabwe credit lines because the country was heavily indebted and did not have capacity to repay.‘Govt mortgaging Zim’s future’.
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