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Govt in huge debt, nobody will lend us money: Eddie Cross

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  • Almost nobody will lend us money and we are being charged penalty rates of interest on all our historical liabilities, writes Eddie Cross..

ECONOMIST Eddie Cross says the Zimbabwe Government is hamstrung by a huge debt burden which it has been failing to resolve for over twenty years.

Cross, who sits on the Reserve Bank of Zimbabwe’s Monetary Policy Committee board, suggests that a new culture of saving must be embraced not just by Government and the private sector, but at the individual level as well.

“Today debt is so easy, the debt trap so enticing,” Cross reckons. The Zimbabwe Voice reproduces part of Cross’s opinion piece below:

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 debts of about US$10 billion only US$4 billion was the original sum borrowed – the rest is interest and penalties. Even the World Bank climbs on the band waggon and is charging us nearly 10 per cent interest on our debt with them – 5 times what we should be being 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 own case I paid a local insurance company more than US$1,4 million over a period from 1957. What should have given me a pension of US$4000 a month today pays me a monthly pension of US$5.

I can still remember my own 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 own 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 purpose, was able to liquidate their 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 the companies would go into liquidation.

Just imagine what would happen if we had to give total debt relief every 7th 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 ever wider in this century and shows no sign of slowing down.

The global deb 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.

But this is not available to most developing States and to the poor. The system reinforces disparity and makes it possible for rapid wealth accumulation on a scale never seen before in human history. This does not make it right and I have been thinking on what the Creator had in mind when he made this ruling.

It’s a bit like the laws on usury – high levels of interest on loans. If you are poor, you pay high rates of interest. Again the main impact is on economic differentials.

There is no doubt in my mind that the instruction to take off one day out of seven and do as little as possible makes complete sense and if followed would make a great deal of difference to people living with stress and other pressures.

In our world the pressure to perform and to achieve is so great that suicide has become a major scourge in many societies that otherwise look very successful.

I have been shocked by the pressure our schools and Universities put on students to excel. I also know many young couples in a country like the States who work at two or more jobs and must commute to have any sort of life.

If this is true, then perhaps we should be looking at debt in another light. There was a time when we saved for whatever we wanted and paid cash.

Savings were a fundamental basis of daily life – living beyond your means was unthinkable. Those values and attributes seem to have gone by the wayside.

Today debt is so easy, the debt trap so enticing. House bond debt, buying a car, expensive holidays, decent clothes. Are we any happier and are we creating a happier and more satisfied world, I doubt it!

Perhaps it time for a rethink and a reset.

Eddie Cross
Harare, 19th October 2020

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