Thread by @OpenParlyZw

WHAT IS GOVT POLICY ON FORMULATION OF MEDIUM DEBT STRATEGY

HON. ANELE NDEBELE: Thank you Hon. Speaker. My question is directed to @MthuliNcube. What is Govt policy in respect to the formulation of a medium term debt strategy as per our Public Finance Management legislation?

HON. NDEBELE: What are the current challenges in formulating? What is the Ministry’s policy position regarding the question of arduous debt.

@MthuliNcube : Madam Speaker, I thank the Hon. Member for his question.

@MthuliNcube : He asked about the medium-term policy which basically is a debt accumulation or debt containment strategy.

@MthuliNcube : The other question is on how to deal with arduous debts which I believe you mean debts also due to illegal leakages according to some books that have been written on arduous debts, including the Thabo Mbeki’s AU Report on illicit flows.

@MthuliNcube : On policy issues, we are very clear that we have to adhere to making sure that in terms of debt accumulation process, we make sure interest rate we pay on debts, we strive to make sure are lower than rate of growth of economy & lower than rate of growth of exports

@MthuliNcube : Whenever the growth of exports is lower than your interest rate, you run into trouble as a country because it means that then you are accumulating debt, you cannot catch up with the interest payments.

@MthuliNcube : Certainly, one key issue to maintain in order to contain debt accumulation is to make sure that our fiscal discipline is found and we stick to it. We should not run a large budget deficit and in the last two years we have stayed true to that..

@MthuliNcube : we managed to contain our deficit. If you don't deal with those two in the way that I have explained, as Zim, we will accumulate debt & that is not a good thing. For debt that we already owe externally, we have resumed our token payments after pronouncement of G-20

@MthuliNcube : We want to make sure that we start honouring those debts and eventually we will get back to dealing with the IFI debt of the World Bank and the African Development Bank before we proceed to a bilateral debt.

@MthuliNcube : Turning to arduous debt which arise out of transfer pricing, out of illicit outflows, I must say that report by former President Thabo Mbeki and also an earlier report that I worked on myself many years ago when I was Vice President of the African Development Bank,

@MthuliNcube : they show that African countries lose easily as much as US$60 billion a year due to illicit flows in terms of transfer pricing and so forth. We are doing our best in dealing with money laundering issues. We are implementing the anti money laundering rules.

@MthuliNcube : There is an international imperative to do so by the way, otherwise then we will stay on the grey list for while, we want to make sure that we comply.

@MthuliNcube : Other things are not easy because it has been shown that some of the leakages in these illicit flows arise from things such as - you know when companies invest in a country you find a foreign investor who will set up a subsidiary in an offshore tax free entity

@MthuliNcube : and over here, they register a company & you find that the offshore entity then extends a loan to the local company.Then what happens is that the local company has to service the interest on the loan from the mother entity before they declare any profits & so forth

@MthuliNcube : So, they end up not paying taxes domestically & continuously service this loan because interest payments are tax deductable. So, we are aware of those tricks, companies use those tricks everywhere & it is not easy to deal with because within the law it is allowed.

@MthuliNcube : Within the accounting rules that is allowed but nevertheless it prejudices the country. Madam Speaker, one thing to do over time is to make sure that foreign companies form joint ventures with local companies.