WITH $1.8 trillion in debt, as Zimbabwe’s Debt Management Office revealed last week, Zimbabwe has indeed slipped into dangerous territory.
And by any standard, this debt has exceeded many of all the benchmarks of the Southern African Development Community, meaning it is an affront to regional integration.
It is as large as the country’s gross domestic product (GDP), estimated at $18 billion, according to World Bank estimates, and it is still expanding.
As each day goes by without settling this debt, Zimbabwe charges significant interest on arrears, which the government could end up passing on to future generations.
Worse still, the desperation seen through the large-scale mortgage of minerals to access more debt will continue.
It’s a complete mess.
As of December 31, 2021, the country’s arrears amounted to only US$6.6 billion and the small payments of about US$50 million made by the government were too small to deal with this crisis, which quickly turns into a plague.
The implications of this unsustainable over-indebtedness are already disastrous.
Debt is behind the government’s recent imposition of numerous taxes that have choked off taxpayers.
The government is under pressure to settle these debts, and the authorities believe that by extracting every extra penny that citizens earn, mainly through electronic transfers, it is doing itself good.
The truth is that it alleviates a crisis that is already manifesting itself in high levels of poverty.
On Thursday, even retail giant OK Zimbabwe Limited warned authorities against forcing a package of taxes on citizens.
“The group continued to incur excessive taxes on intermediated money transfers during the year,” OK Zimbabwe Chairman Herbert Nkala said in a commentary on the group’s financial statements for the fiscal year ended December 31, 2021.
“The increase in transaction thresholds has had a dramatic impact on the competitiveness of the formal retail sector, driving inflation and undermining the profitability and attractiveness of Zimbabwe as an investment destination. “Call on the authorities to lower these transaction thresholds to create a level playing field for retail to benefit customers. An effective corporate tax rate of 34.3% is unsustainable,” Nkala said.
This country will never be able to attract foreign direct investment to its full potential unless the debt crisis is resolved as it scares away potential investors.
This is why the government must urgently tackle the debt crisis.