Reserve Bank of Zimbabwe governor John Mangudya and Finance Minister Patrick Chinamasa
ZIMBABWE need to adopt rules that will limit public debt to 70 percent of Gross Domestic Product (GDP) to avoid the potential of borrowing beyond what government can afford to repay, a leading think tank has said.
The Zimbabwe Economic Policy Analysis and Research Unit (ZEPARU) said in a report released recently that such rules had worked well in West and Central Africa.
They could be adopted by Harare and help the country manage its debt, ZEPARU said in a special edition of the Economic Barometer released recently.
The public debt, of about US$8,3 billion, represents about 60 percent of the country’s US$14 billion GDP, which ZEPARU said was within acceptable ranges.
Most African countries’ debts were within this range, the report added.
However, the think tank noted that this was only because a high country risk placed on Zimbabwe had curtailed its capacity to borrow more funding.
It said if the country had access to international borrowing markets, the public debt, which it has been struggling to repay, could have been higher.
“Zimbabwe currently has public debt-held by central government-of about 60 percent of GDP. This is similar to other countries with fiscal rules. However, the reason it is not higher is the challenges the government faces in borrowing,” said ZEPARU.
“Anticipating a time when it is easier for the government to borrow, Zimbabwe should formally adopt a rule to ensure that debt levels do not unnecessarily balloon. Similar to African countries that are members of the West African Economic and Monetary Union and Central African Economic and Monetary Union, the government should consider adopting a debt rule that limits the total stock of public debt for central government to below 70 percent of GDP,” they said.
Capping debts will help the country manage its fiscal space, which has been affected by diminishing revenues into State coffers at a time when debts and interest on debts have been rising.
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