Government sinking deeper into debt trap: Veritas

TATIRA ZWINOIRA
LEGAL think tank, Veritas says the government is sinking deeper into the debt trap thanks to its agriculture financing model, which has massively contributed to the sector’s current mess.

Last month, the International Monetary Fund (IMF) warned of rising debt aggravated by the Treasury’s assumption of $3.77 billion of debt in blocked funds and a pledge to pay $3.25 billion to former white farm owners.

For these reasons, along with the central bank’s quasi-fiscal activities and increased issuance of government securities to finance spending, the debt is estimated at over $20 billion.

The driver of public debt is the money the government has spent to finance the agricultural sector through managed agriculture.

“The government has invested billions in boosting agricultural production, but statistics from the State of Public Debt confirm that this has not helped Zimbabwe, as over the years it has continued to import maize , wheat and soybeans at a high cost to the taxpayer,” Veritas said in its latest economic governance analysis on agricultural finance.

“Farmers’ private debt is guaranteed by the state, and if farmers default, as most seem to do, the public must pay their debts. Simply put, some people (farmers) use public finances for personal gain.

“Granting broad powers to a few companies to buy and distribute agricultural inputs raises questions of state capture unless the processes are done transparently and tenders for those tenders not be opened and can be viewed by the public,” he said.

Veritas said the funding for the managed agriculture program, in particular, had disproportionately drained Zimbabwe’s finances with little commensurate benefit to the public.

According to the Treasury, the maturity profile of domestic debt reflects the short-term nature of domestic debt securities or treasury bills, as investors in government securities have a preference for short-term instruments to hedge against inflationary pressures.

The maturity profile reflects government refinancing risk, as Z$31.3 billion ($196.43 million) (81%) of outstanding domestic debt securities matures this year, with a corresponding interest bill of 5.1 billion zw dollars (32 million dollars million).

This means the treasury will have to pay nearly Z$37 billion (US$232.2 million) to service the maturing treasury bills that were used to fund the 2020/21 agricultural season.

“The Treasury does not have the capacity to repay this loan and it looks like the debt will have to be rolled over and new notes issued. This will be expensive,” Veritas said.

Last year, Treasury guarantees worth Z$20.21 billion (US$126.83 million) were issued to the Agricultural Marketing Authority (AMA) for the purchase of grain, titles set to expire this year.

In 2020, the government issued national guarantees, including to private companies under the Covid-19 recovery and economic recovery plan, amounting to ZW$24.2 billion ($151.87 million ) and $15.2 million.

The guarantees were issued to the Agricultural Finance Corporation (AFC), formerly Agribank, Silo Food Industries, Infrastructure Development Bank of Zimbabwe (IDBZ) and CBZ Agroyield (winter wheat) which the Treasury said were all on good way.

Veritas called for the managed farming program to be reviewed with the goal of making individual farmers accountable for their debts.

The managed agriculture program was first launched in 2015 with the aim of improving agricultural production, following the land reform program.

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