The issue of Zimbabwe debt

THIS past Sunday, our church sermon was taken from Nehemiah Chapter 10 and focused on the instructions given to the tribes of Israel which had returned to Israel from exile in Babylon about 400 years before Christ.

It is clear from this account that the leaders of the Jewish people at that time were determined to establish a Jewish nation in the region and that this nation should follow the basic principles laid out for these people in the first five books of the Bible.

As an economist and someone who has spent his whole life connected in one way or another to agriculture, I was particularly taken by the admonition that the nation should observe two economic principles - that of rest on the seventh day of the week and the seventh year for all agricultural land. The other principle was that of the Jubilee - the forgiveness of all debt every seven years.

Nothing could be more central to contemporary economics than the issue of debt. The Asian Tiger economies - so described because they have been able to almost universally drag themselves out of poverty in less than 50 years through a process of exportdriven growth fuelled by debt. The levels of debt that they have accumulated is staggering and historically unparalleled. Japan and China lead the pack with national debts of 2,5 times their gross domestic product (GDP).

In other words, if these two countries spent their entire economic output on paying back their debt, it would take them nearly three years. All of the Asian Tiger States have followed this route.

By contrast, the national debt of the United States is about equal to their national GDP - only 40% of the debt levels of the Asian States even after the massive expenditure following the global bank crisis and now the attempt to hold the economy steady during the COVID-19 crisis.

The other great advantage of the United States is that its debt is in its own currency. The debts of most nations are mostly held in United States dollars and are, therefore, much more vulnerable to global shifts in values.

I would not be surprised if total global debt, held by nation States does not now exceed global economic output. We owe others more than we produce. In simple terms we are living on a limb, supported by nothing more than massive amounts of debt that we can never hope to repay.

The astonishing thing is that the debt issue does not end with national debt, it extends to corporate debt and to individual debt.

I understand that credit card debt in an advanced country is often greater than its national debt. We are wallowing in a sea of debt and very few countries could maintain their standard of living without debt.

Zimbabwe stopped servicing its national debt a long time ago - perhaps more than 20 years ago and we are now in default with all multilateral agencies and with most countries. Almost nobody will lend us money and we are being charged penalty rates of interest on all our historical liabilities.

I was astounded to discover the other day that of our main national debt of about US$10 billion, only US$4 billion was the original sum borrowed - the rest is interest and penalties.

Even the World Bank jumped on the bandwagon and is charging us nearly 10% interest on our debt with it - five times what we should be charged. There are no saints in this business.

Those of us who live in Zimbabwe have had our savings wiped out twice by inflation - first between 2005 and 2008 and now since late 2018. In my case, I paid a local insurance company more than US$1,4 million over a period from 1957.

What should have afforded me a pension of US$4 000 a month today, it pays me a monthly pension of US$5. I can still remember my father telling me when I got my first salary after leaving school that I had to start saving for my retirement. I would never repeat that advice to my children. I supported my father after he retired, until he died.

But the other side of this equation was that nearly all local debts were wiped out. Anyone who owed money to others for whatever reason, was able to liquidate the debt with a tiny sum in real money. Stories of people selling a bottle of whisky and paying their bond on the house off, are legion.

Any firm operating on accumulated cash savings - banks, building societies and insurance and pension funds found themselves bankrupt. But we were and still are largely debt free as individuals and firms.

Firms with external debts are in deep trouble and the State has had to step in and take over these liabilities or face the reality that the companies would go into liquidation.

Just imagine what would happen if we had to give total debt relief every seventh year. It would involve a massive transfer of real wealth to the countries and individuals and even the companies who owed money and would cost the people with "old money" very dearly. But overnight it would create a more equal world. Perhaps that was the goal of the Creator when he laid down how his people should live.

The one thing we all know is that the debt-driven world has created a global economy which has become ever more unequal - the gap between the haves and the have nots has grown wider in this century and shows no signs of slowing down.

The global debt system is based on trust and perceived risk. If people with money are satisfied that you or your company or your country, can be trusted with accumulated money and will service the interest on time and be able to pay it back when the contracts are concluded, then you can borrow almost unlimited funds and at very low interest rates.

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Eddie Cross is an economist and he writes here in his personal capacity.