GOVERNMENT borrowings registered a 57 percent increase in the year to October 2014, as the administration continued to scrounge for cash in a strapped economy, a latest Reserve Bank of Zimbabwe (RBZ) report has said. On a monthly basis, net credit to government increased by 6,34 percent, from US$442,4 million in September 2014 to US$470,5 million in October. This comes as government is constantly experiencing budget deficits due to its high recurrent expenditure.
Government is also likely to borrow more funds to finance civil service salaries as it has been forced to rely on domestic borrowings since its tax revenue base has dwindled because of company closures which have led to retrenchments. The fact that Zimbabwe has no access to international capital has made the situation worse. According to the report, cumulative fiscal revenue inflows during the period totalled US$3,1 billion with a budget deficit of US$21,59 million.
Presenting the 2015 national budget in November last year, Finance Minister Patrick Chinamasa said the country’s debt stood at US$8,39 billion. “This would comprise external debt of US$7,2 billion and domestic debt of US$1,1 billion. Of the US$7,2 billion external debt, the stock of accumulated arrears would account for 81 percent of the total external debt,” said Chinamasa.
Zimbabwe’s foreign and domestic debt has undermined the country’s creditworthiness and compromised its ability to secure new funding due to the fact that most of it is now in arrears. Much of the borrowing has been for consumption rather than production, implying the debt is not being used to grow the economy.
While debt remained crucial to development, it was the manner in which it was used that was of concern. The appetite for debt has been increasing in Zimbabwe due to lack of balance of payment support from bilateral and multilateral institutions as well as dwindling tax revenues due to company closure and high unemployment.
The RBZ said cumulative government revenues to October amounted to US$3,1 billion against a target of US$3,3 billion, resulting in a negative variance of US$162,7 million. Annual growth in domestic credit remained largely unchanged at 6,18 percent in October 2014. On a month-on-month basis, domestic credit grew by 1,50 percent to US$4,3 billion from US$4,3 billion in September.
Long term deposits registered the largest annual growth of 41,3 percent in October. Over the same period, savings recorded and increases of 23,7 percent while demand and short term deposits, achieved growth of 5,7 percent and 3,5 percent. “Annual growth in credit to the private sector stood at 1,84 percent in October 2014, up from 0,93 percent in September 2014. On a month-on-month basis, credit to the private sector recorded a growth of 0,96 percent to US$3,78 billion in October from US$3,75 billion in September,” said the RBZ.
During the month under review, loans and advances constituted 82,84 percent of the total credit to the private sector, followed by mortgages -12,75 percent, other investments -1,95 percent, bills discounted -1,43 percent and bankers’ acceptances -1,03 percent.
“Financing by banks was channelled to the agricultural sector through pre and post tobacco financing -18,16 percent ; manufacturing -14,94 percent, households -17,81 percent mining -6,73 percent and construction -2,15 percent. Loans and advances, however, remained short term in nature,” said the RBZ.