Zimbabwe has a massive national debt. This is currently estimated to be $7bn. If Zimbabwe is to gain the necessary support from international finance institutions, commercial lenders and others, it has to deal with it. Of course some debt is perfectly acceptable, but it has to be serviced, and with debt exceeding GDP this is difficult, as debt servicing takes up too much government revenue. And of course when debt is not serviced, then confidence in the economy plummets and investment does not flow. It’s a catch-22: ask the Greeks, Irish or Portuguese – and even the British and Americans. Dealing with the national debt is therefore crucial to national recovery.
With the catastrophic economic collapse through much of the 2000s, exacerbated by appalling fiscal discipline and accelerating hyperinflation to early 2009, the economy was in a real mess. So all credit to Tendai Biti in his role as finance minister for getting things back on course. The change in currency (abandoning the Zim dollar) was critical, but so have other measures. Growth is estimated to be 9%, and investment is flowing back into the country.
So what should be done about the debt? This a crucial element of longer term recovery, and will allow government financing of key areas. Rebuilding the agriculture sector following land reform is a vital task, but without funds recovery while positive is much, much slower than it might have been. If compensation for land improvements is rolled into the debt estimate (currently estimated at $3bn for a full settlement), then payouts to those (white) farmers who lost land through the land reform could be managed, as part of the debt settlement. Some of this could be paid back, with one suggestion being that A2 farmers pay 30% of the cost upfront into a fund, and the remainder is paid off over time as part of land taxation. Payments for A1 farms are less likely and so would have to financed separately. Such a solution, as part of a debt deal, would unblock a whole range of issues in the agriculture sector, allowing security of tenure and investment to flow again. The wider political-diplomatic dividends would be substantial.
There are two views as to what to do about the national debt. A Jubilee Debt Campaign report reviews these options, and lays out the pros and cons. One option argues that a local solution should be found, whereby minerals revenues (which are large and growing) should be channelled towards debt write-off and external financing should come with no (or few) strings attached. When Zimbabwe’s economy was at its low point, China continued to provide (tied) finance – for the fertiliser and tractor programmes of the Reserve Bank, for example. China’s banking and loan finance arms are now widespread across Africa, and very active in Zimbabwe. But is this enough, and will the minerals tax take flow as smoothly as suggested towards debt repayments?
Another view is to go for an international debt write-off under the HIPC (Heavily Indebted Poor Countries) mechanism. Under an international deal, the compensation issue could be incorporated and calculated as part of the HIPC deal. However, this would require adopting IFI conditions, and undertaking a poverty assessment to show that reform could be directed to poverty reduction. This is a route a number of African countries have gone down, including some now doing rather well, including Zimbabwe’s neighbour, Zambia.
Some argue though that the HIPC route would be disastrous. Those making this case – as ever in Zimbabwe is a strange combination – include hardline ZANU-PF politicians who argue that this would undermine national sovereignty and debt relief campaigners who are worried about the conditionalities that would be attached. Should Zimbabwe suffer another ESAP period, just as things are looking better?, they ask. The Jubilee Debt Campaign report argues:
“The Zimbabwean story highlights many dangers of basing economic development on the use of foreign loans. We support calls for poverty and inequality to be reduced primarily through mobilizing domestic resources and reducing the outflow of resources through illicit flows, tax avoidance and multinational company profits, as well as debt repayments”.
The report argues against an immediate debt relief solution. Instead they argue that a first step must be a full debt audit to see who paid for what in past debt. While it is important that both the processes of taking on debt and writing it off should be clear, transparent and accountable, it is not that clear to me at least what the benefits of uncovering the rights and wrongs of all loans since 1980 would be.
In the report a number of different past loans are highlighted. For example, the World Bank financing of the Forestry Commission in the 1980s is offered as a case of a ‘bad’ loan. The returns were not significant and the money was wasted it was suggested. Having been involved in forestry debates in this period, there is plenty to critique, but I am not sure that a World Bank loan was irresponsible, as the Commission was trying to regear itself to serve the whole country and had to concern itself with fuelwood and trees in the communal areas. Another example is the sale of land rovers to the Zimbabwean army. But again remember in the 1980s, the UK provided much support to the creation of a professional army following the war. All of these ended up with the racking up of debt.
But these were perhaps not the main economic misdemeanours that have led to the current crisis. This had its origins in the structural adjustment programme, and then a series of politically driven decisions which led to reckless fiscal indiscipline (from the war vet payouts to Gideon Gono’s frenetic printing of money), and a massive growth in corruption, linked in particular to minerals revenues.
While arguing for transparency and accountability in future financial dealings makes much sense, a long drawn out audit of the past probably doesn’t, particularly if it delays yet further resolving the debt issue through a negotiated HIPC route (a solution which, while problematic on some counts, is definitely not all bad in my view). And there is no time to lose. The lack of finance in the Zimbabwe economy over the past decade has limited recovery and created poverty. As argued elsewhere, a lack of economic recovery also stymies democratic renewal. Addressing the debt issue must be a priority therefore. And, if linked to dealing with the resolution of the thorny compensation issue, then an array of tenure, finance and security issues can be dealt with in the agriculture sector, releasing the full growth opportunities of the land reform.