6 February 2013

Zimbabwe: Debt Cripples Zim - Biti

FINANCE Minister Tendai Biti's address to business executives at a briefing in Harare this week could pass for a lamentation.

The country's head of Treasury said Zimbabwe was still far from accessing cheap funding from offshore sources due to ballooning foreign and domestic debt and the country's failure to repay its creditors.

It's indeed hardly sobering for a country desperate to come out of the woods after a decade of economic crisis that decimated industry and triggered record unemployment levels that forced the majority of citizens to the fringes of the economy.

Biti, who was last year forced to revise downwards his national budget, said the country was borrowing at very high interest rates that did not promote growth at a time the economy was not generating enough money to repay outstanding debts.

Describing Zimbabwe's economy as "dysfunctional" and fit for liquidation if it were a private business, Biti told the Confederation of Zimbabwe Industries (CZI) 2013 economic outlook symposium on Thursday last week that the country remained isolated and needed to re-establish relations with the international community to revive its frail economy.

"I do not like the word sanctions, but would rather say we are isolated and need to be integrated with the rest of the world if we are to escape from this debt trap. No country can succeed on its own; we need one another," he said.

"We need to agree on a conducive and feasible solution to pay off our debts just like we did on the Copac issue. It has to be for the good of Zimbabwe not anyone or any partly," Biti said.

Copac is the Constitution Select Committee that was spearheading the writing of Zimbabwe's new constitution expected to go on a referendum in March.

"We are presiding over a very unsustainable economic matrix and it is not sustainable," Biti said.

Zimbabwe's foreign and domestic debt currently stands at US$11,7 billion. The huge debt, which could result in higher future taxes if the country's major sectors of the economy do not start performing against a background of inadequate foreign aid, investment and poor creditworthiness, is made up of US$10,7 billion foreign debt, with the balance of US$205 million being local debt.

With an estimated population of 13 million, it means every Zimbabwean owes creditors about US$1 000. Even a child born today will have a debt burden hanging over his or her head.

"We need to start embracing the rest of the world and honour our debts if we are to access loans with interest rates of 0,75 percent," Biti said.

Zimbabwe has outstanding arrears with multinational financial institutions such as the World Bank, International Monetary Fund and Africa Development Bank (AfDB). This has stalled any borrowings from these institutions.

Biti said government was going to embark on a three year plan that would result to the civil servants' salary bill being reduced by 30 percent.

"We need a collective approach to address the problems facing the economy especially a huge debt overhang as well as a highly consumptive budget structure," he said.

Speaking at same occasion, economic commentator Tony Hawkins said Zimba-bwe was no longer "a cheap economy", saying all sectors of the economy needed to be productive if the country was to record positive growth.

Biti accused foreign banks of not supporting the country's plan to revive the economy .

"About 55 percent of Zimbabwean banks' profits come from non interest activities and levies which is not their core business but are not supporting government's efforts to revive the economy," he said.

He said Zimbabwe was in the process of amending its Banking Act after repeated attempts to sell Treasury bills failed to attract bids at rates acceptable to the central bank and Finance Ministry.

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