Zimbabwe Debt Crisis

Topics: Tax, Economics, Public finance Pages: 9 (3366 words) Published: March 30, 2011
List of Tables

Table 1: Zimbabwe debt figures 1995-1996
Table 2: Zimbabwe deficit figures 2000-2003
Table 3: Possible solutions

In this paper the author shall trace the country’s economic trajectory, starting with Dr Benard Chidzero’s budget presentation of 1986 which he described as “particularly difficult”, and projected a budget deficit of ZW$1 billion. The importance of the huge post-war expectations of the general populace, and the ruling party’s deep desire to retain political power will be tackled in establishing the reason for the consistent worsening of budget deficits and debt since then. The history of the development of Zimbabwe’s economy with a particular emphasis on the impact of Government’s seemingly political rather than economic reasoning, will be explored to expose the causes of huge public sector deficits. It will be argued that in the period under review, key, ill-advised and poorly implemented decisions such as awarding war veterans compensation, engaging in the war in the DRC and the chaotic land redistribution are indicators of politically motivated decisions that severely impacted on the nation’s fiscal solvency. The paper concludes by proffering possible solutions, aiming at not only reducing the budget deficit and debt but at enhancing the country’s overall competitiveness.


The period under review will be divided into four periods, namely the pre-liberalization period (1985-1990), the structural reforms period (1991-1996), the De-industrialization era (1997-2008) and the post dollarization era, 2009-2010. The first section will show how in the pre-liberalization era, the government was under pressure to improve the socio-economic status of the general populace, and this led to huge demand on the fiscus. This was exacerbated, by the government apparently embracing a Marxist-Leninist ideologies. In the second section it will be shown that fiscal discipline continued to elude Zimbabwe even in structural reforms period, and the positive and negative effects of the reforms only had a minimal impact on the budget deficits and debt. In the third section, it will be argued that the majority of Zimbabwe’s challenges during this era emanated from Government’s failure to contain spending and its embarking on unbudgeted for, and expensive “projects”, that did not yield any economic returns, save for ensuring that the ruling party retained power. In the fourth section, it will be shown that there has been a general commitment from the incumbent finance minister to contain the budget deficit, though the huge civil service wage bill, coupled with the reduced industrial capacity utilization (thus reducing expected revenue) means budget deficits are still with us. The paper will base upon such arguments to prove that the past and present fiscal challenges are of a historical and political nature as evidenced by the fact that only one factor has not changed since 1985-the ruling party. The final section will present the strategies that can be used, and those currently being used to overcome the past and present fiscal solvency challenges in the nation. 2.1 Pre-Liberalization Era (1985-1990)

When the present ruling party assumed power, there were wide expectations generated from the pre-independence era. The expectations of the nation were immediate improvement on employment, education, health and land. The nature of Zimbabwe’s population distribution (then and now) which is dominated by the young and school going age, meant government had to spend more on education and health. The political instabilities in Matebeleland (until 1987), and in Mozambique, (where Zimbabwe had to guard oil pipes) meant the defence budget did not decrease significantly as expected. This is evident from Mr Chidzero’s budget of 1986, in which education had the highest allocation at 17%, followed by defence at 16%, and debt servicing at 13%. The minimum wage policy, meant...
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