ANALYSTS warned this week that the country will be heading towards another hyperinflationary era if the government's annual borrowing plan is implemented, as it will increase the money supply.
Zimbabwe has endured decades of hyperinflation buoyed by inconsistency in monetary policies, unlawful and excessive money printing for financing government projects among other economic ills.
At the heart of Zimbabwe's economic problems has been government overspending with the Treasury experiencing budget deficits.
In most cases, the deficits have been funded by the issuance of government bonds, primarily Treasury bills (TBs).
With regard to the 2024 annual budget, the government has released an annual borrowing plan for this year, which is based on marketable domestic debt instruments and external loans.
The plan is underpinned and consistent with the medium-term debt management strategy (2022-2025).
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The 2024 National Budget has an overall balance of ZW$4,3 trillion, which represents 1,5% of the gross domestic product with projected revenues of ZW$54 trillion and estimated expenditures of ZW$58 trillion.
The total budget financing gap in 2024 amounts to ZW$9,2 trillion, comprising a budget deficit of ZW$4,3 trillion (1,5 % of GDP) and amortisation of loans and maturing government securities estimated at ZW$4,9 trillion.
Given the total financing requirements of the 2024 National Budget, the government says the gross financing gap will be financed through domestic and external borrowing.
These include issuance of Treasury bills and bonds amounting to ZW$5,8 trillion, disbursements from existing external loans amounting to ZW$367 billion and new external loan disbursements amounting to ZW$2,9 trillion.
On government securities, the baseline assumption is to issue Treasury bills and bonds through the auction system and private placements.
But economic analyst Chenaimoyo Mutambasere said the Treasury's reliance on accumulating more debt in response to hyperinflation and economic instability is regrettable.
Instead, Mutambasere said it should urge the government to address pressing issues such as human rights, corruption, and fair elections to pave the way for constructive debt dialogue talks and sustainable solutions.
"Currently, the burden of previous treasury debt is being shouldered by the public budget, straining resources already stretched thin due to climate-related challenges and global uncertainties,” she said.
“The issuance of domestic debt instruments raises concerns on two fronts: firstly, it risks exacerbating hyperinflation by injecting more money into the economy without a corresponding increase in productive capacity, leading to a situation of excessive money chasing limited goods.”
She added: “Secondly, past experiences, for example, Sakunda, between 2016 and 2019, was given preferential rates through TBs (and) received US$93 million using heavily discounted rates that were not available to the market.
“This resulted in bloated money supply and unfair advantages for private entities, eventually forming the genesis of the currency liquidity crisis.”
Mutambasere said without clear safeguards in place, there is little assurance that similar pitfalls will be avoided in the future, posing significant risks to the economy.
Another economic analyst Tapiwa Mashakada said TBs and bonds will increase money supply growth and spur inflation.
"Government said it has worked out a phased plan to finance its national debt in 2024. The primary sources of financing are from domestic borrowing (treasury bills to the tune of ZW$5,8 trillion) and external borrowing to the tune of ZW$3,5 trillion). Both methods of financing have implications on macro-economic stability," he said.
"Treasury bills and bonds will increase money supply growth and spur inflation. External borrowing increases the debt burden and compounds the interest on debt. Whichever way one looks at financing the debt, it boils down to the commitment of huge resources at the expense of social services delivery and poverty eradication."
He added that the government must ask for debt cancellation and start on a clean slate.
Debt service, he added, was unsustainable given that a large chunk of the debt could be odious. In 2024, new external loan disbursements for budget support and central government projects are projected at ZW$2,9 trillion (US$330 million).
According to the government, the strategy is to gradually lengthen the maturities of government securities going forward.
Uptake for medium to long-term government securities is expected to increase given the projected stable macroeconomic environment, which is characterised by low inflation and a stable exchange rate.