analysisBy Eric Bloch
OF Zimbabwe's many economic ills, the greatest must be the magnitude of poverty of its population. According to estimates, 80% of the employable population lacks formal sector employment. Most people are struggling to survive on incomes below the poverty datum line (PDL), and survive as a result of support from those few gainfully employed and from relatives abroad.
In desperation to survive, some are resorting to crime ranging from burglaries to car-jackings, armed robberies and corruption.
As if living below PDL incomes is not bad enough, more shocking is that almost 60% have incomes below the food datum line (FDL), and therefore suffer from under-nourishment and malnutrition which endanger their lives.
However, a close second in the economic ills that afflict Zimbabwe, which is also an indirect contributor to the population's poverty, is Zimbabwe's huge national debt. In his 2012 mid-year budget review, Finance minister Tendai Biti disclosed that national debt is more than US$10 billion -- more than three times Zimbabwe's annual total economic output (GDP).
Moreover, even if Zimbabwe now succeeds in adhering to the minister's declared objective of containing expenditure to revenues instead of recurrently incurring further debt, the interest burden on the existing debt increases national loan liabilities as Zimbabwe does not generate sufficient income to service the interest charges.
Despite Biti's endeavour to contain state expenditure to match revenue, and the intense attempts by the Zimbabwe Revenue Authority (Zimra) to increase receipts, the reality is that the sum of expenditures government must incur continuously exceeds revenue. Zimbabwe's essential infrastructure is aged and in need of urgent maintenance and upgrading. This includes its energy generation resources, water procurement and delivery, rail and air services, telecommunications, roads, health and education. But state revenue is grossly inadequate to meet infrastructural costs, in addition to ongoing government's operational expenditures.
So that despite the declared intention to progressively reduce national debt, the reality is that government still has to resort to borrowings, resulting in its debts increasing by a combination of unserviced interest charges and additional borrowing. Zimbabwe is consequently becoming, to all intents and purposes, more and more insolvent.
Admittedly, there are many (including politicians and civil servants) who contend that Zimbabwe's borrowing is not excessive in relation to the magnitude of its mineral reserves which include gold, platinum, diamonds, lithium, chrome, coal, methane gas, uranium and much more. This contention is fallacious, for although Zimbabwe has such reserves, they are intangible assets because of Zimbabwe's inability to access and process them adequately.
They are not realised reserves, but only potentially realisable and they yield comparatively little for the servicing of national debt. Zimbabwe is thus over-borrowed, and the extent of the increasing indebtedness is worrisome.
Because Zimbabwe is virtually insolvent, and because of its recurrent failure to service its debts on time, the country has very limited access to the loan funding it requires for overdue infrastructural maintenance and repairs.
Many of the world's key lenders such as the International Monetary Fund and the World Bank are precluded by their constitutions from making advances to debt-servicing defaulters. Others, not precluded from making advances to Zimbabwe, are reluctant to do so for they inevitably perceive Zimbabwe defaulting in its debt servicing.
Therefore, government is very constrained in seeking desperately-required loans from the few countries (and their institutions) willing to provide funds. Those countries do so not out of magnanimity and generosity, but in order to gain benefits over and above the accrual of interest. Countries still willing to loan fund Zimbabwe are from the Far East. In so doing, they are not driven by philanthropy or generosity, but by the benefits from lending.
Among the benefits are concessions in the award of mining rights. They also demand trading benefits that include concessions on import duties (notwithstanding the resultant harm inflicted on Zimbabwe's manufacturing sector, which is unable to compare with imported products benefitting from the concessions).
Other benefits demanded by loan providers include exemptions from Zimbabwe's empowerment laws, tax concessions, residence permits, encumbrance of state assets and awarding of government contracts (frequently at high charges) in respect of the infrastructural projects funded by the provided loans. Often, political concessions and support are also sought in exchange for loan funding, such as in the deliberations of the United Nations and the African Union.
Thus the consequence of government's self-imposed quasi-insolvency has been to mortgage Zimbabwe and its economy to an untenable extent. This has resulted in increased poverty and suffering, with Zimbabwe virtually forfeiting its Independence. The situation will continue unless Zimbabwe repairs its damaged international relationships with many countries, and seeks debt forgiveness and substantial foreign investment.