ECONOMIST Professor Oliver Saasa says instead of focusing on seeking moratoriums, government needs to urgently draft a bankable document which will convince all its creditors that not only is there transparency but there is also a debt strategy which can bring them some comfort.
And Prof Saasa says government might fail to source budget support financing from the international community if the state of affairs remains constant.
In an interview, Prof Saasa said the concept of treating everyone equal by defaulting on all loans did not make too much sense.
“People must appreciate and recognise that the debt crisis and how we manage it, how we manage the Eurobond holders, how we play around, whether we are talking about pari passu or not, ultimately, you have to pay and whether you are actually saying we want to treat everybody the same, treating everybody by defaulting with everybody does not help anybody does it? You cannot say I want to treat you similarly but I want to punish you similarly, I want to refuse to pay similarly, what is important is for us to start saying, look, we know what the bondholders are demanding, we know what the Chinese are requiring, the bottom line is that you must come up with a bankable document that will convince those you owe money, firstly that you are transparent, the figures you are reporting are correct, the conditions under which you have accessed debt from these, especially the Chinese is acceptable and it’s clear, you have declared all the debt that people must know about but most importantly, we have come up with a very clear convincing debt strategy that will bring that level of comfort to all the debtors,” said Prof Saasa.
“Chinese, bilaterals, multilaterals, bondholders, they need that so that they say, even if we give you a moratorium, we are sure that what you are showing us by six months down the line, we can see light at the end of the tunnel, you should be able to manage your debt stock. As long as we are not investing sufficient energy in coming up with that document, and we keep on talking about pari passu, it becomes meaningless to me. Because if that, I believe that yes the Central Bank has managed the monetary side of the equation which for me, is my least of worries at the moment, the elephant lies elsewhere and that it lies at the Ministry of Finance and the executive. So even if they did the wrong thing, there is a bigger wrong thing somewhere where it cannot even have the sort of desired effect.”
And Prof Saasa said government could fail to source budget support financing from the international community given the current state of affairs.
“Talking about stabilising, and I think the Central Bank doesn’t have much, the problem we have is less and this is the point that probably many people must understand. The major problem we are having at the moment is not monetary, you can have like what has happened, have no difficulties with maintaining the rate as they did with the Central Bank, the problem is in the fiscus. The problem is expenditure pattern, the problem is how we have contracted debt and manage it properly, the problem is how we manage the sectors that need stimulus including the mining sector that right now is the major source of foreign exchange but they are limping because of a host of things including the major bigger problem with the debt. So you find that while yes, the Central Bank perhaps must maintain that stability and I had no problem with that, I am seeing a much bigger problem that we need to engage in,” said Prof Saasa.
“The stabilisation is needed but you see, we are in a situation where there are too many moving parts, because of that, while we really need to sustain and stabilise inflation [and] in the process hope that we will see positive traction at different levels in the macro-economic fundamentals, I think we have this very fat, huge elephant in the room which obliterates most of what it takes to make a difference, the debt and it’s management. At the moment, you cannot access even the sort of resources we have projected to get from the international community to finance a significant portion of our budget next year. A big question mark is hovering over that mainly because as you know, a significant part is expected to be sourced from the market. We cannot expect significant investment flowing in, which is so important as a stimulus to the sort of growth that we want; foreign direct investment.”