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Why the rejection of the $1.2 Billion loan to Zimbabwe by South Africa can be used to advance a more sustainable debt management strategy for Zimbabwe

Zimbabweans woke up to the news that South Africa had rejected an emergency loan application by Zimbabwe to the tune of $1.2 billion. This loan is reported to have been meant to stabilise the economy and eradicate the fuel shortages that have bedevilled the country since the 14th quarter of 2018. The fuel sector is clouded by rampant corruption, arbitrage and lack of transparency in the forex allocations to in the industry by the monetary authorities – RBZ.

The fuel crisis is one of the major symptoms of a failing economy which is also characterised by a currency crisis which at one point caused the Zimbabwean fuel to be the cheapest based on the parallel market of the Zimbabwean Bond Note (ZBN) and the USD. On the official market the government insists that the ZBN and the USD are 1:1. On the other hand the citizens face the realities of the multi-tier pricing system in the form of ZBN, USD mobile money and the swipe prices when buying basics including fuel from retailers.

Based on the government insistence that the USD and the ZBN have the same value and the rejection of the loan facility by South Africa, on the 12th of January the citizens woke up to a shocker as fuel prices were hiked by over 150% from $1.34/litre $3.31/litre of petrol and $3.11 for a litre of diesel with the rate of 1:1 applied to the Zimbabwean citizens while expatriates will buy a litre of petrol at US$1.24. This has made Zimbabwean fuel to be the most expensive in the world. Such a contradiction in policy pronouncement is not only sad but an insult to the citizens who are now being treated only as a clientele rather than the citizens that they really are. The subsequent protests attest that citizens are not only of clients.

For the government of Zimbabwe to seek a loan amidst this unresolved deep rooted and multifaceted crisis was not only unjustified but irresponsible and outside the confines of the law.

The constitution of Zimbabwe is clear on the role of Parliament on setting limits of state borrowings, public debt and state guarantees ( Section 300)- this constitutional provision is not fully implemented, The RBZ Act section 11 Amendment Act of 2010 stipulates the debt limits and thresholds of 20% of the previous annual national budget- this too has been grossly violated. Public Debt Act of 2015 section 11 sets the threshold for public debt at not more than 70% of the GDP and Zimbabwe is already way above these threshold with a debt stock of over $18 billion against an economy rebased at about USD25billion in 2018 from around USD18billion. In the Public Finance Management Act of 2009 section 52 it is provided that amounts that may be borrowed shall not exceed 30% of the general revenues of Zimbabwe in the previous financial year- this too has been violated and the government of Zimbabwe in its 2019 National Budget Statement admitted to violating all the legal provisions!

If the $1.2 billion loan had been granted it would have failed the legal test and also policy test. How can a government that has not yet put in place a sustainable debt strategy, shared and passed by Parliament go on to acquire more debt clandestinely and raise the current unsustainable debt to ever higher levels? On unknown terms? how can a government that is struggling to clear its current huge arrears to creditors seek to borrow more, how can a government assuming more debt at the domestic level go on to seek more debt and digging deeper the debt abyss for future generations, How can a government that has such a huge appetite for foreign direct investment and is seemingly mortgaging every resource to investors go on to privately look for resources to stabilise the economy?, many more questions come to mind.

The negative response from South Africa is welcome by the Zimbabwean citizens who have more questions than answers on the current debt stock; however the rejection of the proposal must have been informed more by principles of responsible lending that just the self interests of whether the Zimbabwean government will be able to meet the obligation to pay back or simply because South Africa “had no such money.”

As the government of Zimbabwe seeks to stabilise the economy and address the current crises the following points are worth considering:

  • The current socio-economic crisis will not be resolved by seeking new credit lines without setting a sound, people centred economic reform agenda.
  • The much needed economic reform agenda can only be guaranteed of success if it is set at home rather than at the international level. Reform is only reform it is rooted in its people and their aspirations.
  • Action towards economic recovery must be hinged on transparency on government revenue. How public resources are spent is as important as where resources are coming from and what those resources are being used for in line with resuscitating the economy in comatose.

To the creditors, both existing and potential engagement with Zimbabwe and the opening of new credit lines must be informed not by their self interests only but by the interests of the citizens of Zimbabwe. In this regard the demand for citizens’ consultations must not only be rhetoric but fully demanded from the Zimbabwean government before any loan contraction deal is signed off. The citizens of Zimbabwe are clear on the terms for any new credit lines and these are outlined as follows:

  1. Zimbabweans are calling for a debt audit to determine the current debt structure which will inform how Zimbabwe can seek for debt relief to benefit its citizens.
  2. The citizens of Zimbabwe are demanding involvement in the crafting of a debt resolution roadmap to avoid the current unsustainable debt overhang and debt traps currently witnessed in the region and beyond.
  3. The citizens of Zimbabwe aspire for a genuine people centred economic reform agenda that is hinged on human development and not only macro-economic figures premised on economic growth that is faceless.
  4. Zimbabweans are against new loans that seek to treat the symptoms without putting in place proper macro-economic fundamentals informed by the people of Zimbabwe. Such debts are only consumptive; non productive and unsustainable hence must be rejected on such terms.

As Zimbabwe peddles the murky waters of political and economic crisis, seeking to put an ailing economy back on its feet and drop down the continuing escalating debt both external and domestic caused by irresponsible lending, borrowing and assumption, the Zimbabwean debt debacle must be subjected to an audit within a human rights based framework. This will entail fully understanding how Zimbabwe’s current debt was used to either fulfil or violate fundamental human rights and how future and new loans must enhance the fulfilment of human rights within its jurisdiction while the creditor will have to be responsible enough to enter into loan agreements that respect, protect and promote the advancement of human rights under domestic and international statutes.

Any state-centric, donor-centric, techno-centric and all other prescriptions to resolving the current economic and debt crisis that violate human life and dignity have not worked in the past in Zimbabwe- the ESAP of the early 1990s and in other developing countries austerity measures failed dismally, therefore will not work for Zimbabwe now or anywhere else and must not be applied without being subjected to public debate in Zimbabwe.

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