Harare – Lately the Government of Zimbabwe has been asking lenders such as the African Development Bank to mortgage the country’s mineral resources and get foreign capital needed to grow the economy.

Last year, the RBZ John Mangudya told visiting Australian assistant secretary for Africa branch Gita Kamath that the country is ready to securitise its mineral resources in exchange for over US$1 billion in long-term capital to turn around the economy.

The move comes at a time Foreign Direct Investments (FDIs) have been low as investors sit on the fence, citing the empowerment laws as an inhibiting factor. It also comes at a time government is weighed down by recurrent expenditure and dwindling revenue inflows.

What it entails is the mineral resources would be used as security in accessing capital needed to grow the economy. Both developed and developing countries have used minerals as mainstay for the economies.

In an exclusive interview with Equity Axis on the sidelines of Zimbabwe High Level Debt Conference in the capital on Thursday running under the theme “Public Finance Management in Zimbabwe: Gaining Traction or Distraction” organized by ZIMCODD, prominent Zimbabwean entrepreneur and former Zimbabwe Investment Authority chairman, Nigel Chanakira, said the country has to be clever when mortgaging its resources and avoid being reckless as in the past years.

“It has been done, it can be done but I think what this conference is actually saying is that the country should be clever about it and let’s not be reckless. Other nations like Zambia were reckless, we saw the price of copper plunging 30 percent and in fact they could not generate as much revenue as they previously did.

“We saw Ghana going into the debt markets on the assumptions that they got oil but it didn’t work. We saw the cycle to discovering and mining and deriving revenue from that mineral wealth you might have it won’t work.”

However, Chanakira pointed out that Zimbabwe has to take lessons from countries like Norway and Botswana who have been clever and smart by using their resources and leveraging them for the betterment of their economies.

“We need to quantify that resource base, ascertain the value and maybe then we will be able to use it for future generations of Zimbabwe. I must emphasise, borrowing should not be for current consumption but for infrastructure that is sustainable and should also be for specific projects which are capable of paying the way in the short, medium and long term.”

Lessons from Zambia

In his latest paper titled, “Fit for Purpose? An Analysis of Zambia’s Medium-Term Debt Management Strategy, Former Bank of Zambia Governor Dr Caleb Fundanga observed that three Eurobonds completely reversed the country’s almost debt free status attained before 2011.

Dr Fundanga noted that Zambia was one of the countries that benefitted from the Highly Indebted Poor Countries (HIPC) and Multilateral Debt Relief (MDR) Initiatives noting that these initiatives left the country almost debt free.

Dr Fundanga stated that with a debt stock of 18.9 percent of GDP in 2011 Zambia’s debt stock grew to 56.3 percent by 2015.

“This very rapid increase has occurred since 2012 due to the issuance of Eurobonds; US$750 million in 2012, US$1 billion in 2014 and US1.25 billion in 2015. The rapid increase in debt has translated into huge annual debt service payments; from US$34.14 million in 2011 to US$484 million in 2016,” he wrote.

Dr Fundanga observed that the domestic debt situation has been equally bad.

“This debt, mainly contracted through issuance of Treasury Bills and Bonds, has grown from ZMK11 billion in 2011 to ZMK33 billion in 2015 with resultant composite yield rates for Bonds rising from 15 percent in 2011 to 25 percent in 2015 whilst Treasury Bills rose from 11 per cent in 2011 to 24 per cent in 2015. When domestic arrears are added to this, domestic debt stock in 2016 stood at ZMK 51.8 billion – with arrears representing 36 per cent of domestic debt.”

The Former Central Bank Chief stated that the PF government has been using debt to drive growth.

He however noted that redemption of any debt works much better if the proceeds of the borrowed money are invested in productive sectors of the economy.

“In the case of Zambia, a large portion of the loans went into expansion of public administration such as the establishment of a new province and new districts. Each of these led to employment of more public servants and increases in other related costs. A number of roads were also constructed, but these were at very high costs. Together this spending has not resulted in significant economic growth, or a larger tax base. This makes redemption of loans much harder,” he stated.

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