Economic Governance Watch 04-2023 - Parliamentary Approval of Government Debt

ECONOMIC GOVERNANCE WATCH 4/2023

[17th May 2023]

Parliamentary Approval of Government Debt

Introduction

On the 15th March the High Court granted an application brought by the Zimbabwe Coalition on Debt and Development [ZIMCODD] and two other social justice and economic activists.  The effect of the court’s order, which was issued by consent, is that:

  • Within 12 months the Minister of Finance and Economic Development must propose to the National Assembly a limit on public borrowing which the Assembly should fix in terms of section 11 of the Public Debt Management Act.
  • Within 12 months the Minister must publish a Bill in the Gazette to amend the Public Debt Management Act:
  • outlining the role of Parliament in approving State loans and guarantees before they are contracted,
  • setting out limits on State guarantees for the purposes of section 300 of the Constitution,
  • laying down the procedure by which Parliament ratifies or rejects loans and guarantees, and
  • laying down a procedure by which the State regularly updates Parliament on its debts, loans and guarantees.

In this bulletin we shall explain the background and possible effect of the court’s order.

Background to the Order

The Government’s power to borrow money and incur debts is regulated, at least in theory, by the Constitution and the Public Debt Management Act [Later we shall explain what we mean by “at least in theory”].

The Constitution

Section 300 of the Constitution states that:

  • An Act of Parliament must set limits on State borrowings, the public debt and the debts and obligations which can be guaranteed by the State
  • An Act of Parliament must also lay down terms and conditions under which the Government may guarantee loans
  • After the Government has concluded a loan agreement or guaranteed a debt or obligation, the Minister of Finance must publish the terms of the loan or guarantee in the Gazette within 60 days.
  • The Minister of Finance must report to Parliament at least twice a year on the performance of State loans and guarantees.
  • When he presents the annual budget, the Minister of Finance must table in Parliament a comprehensive statement of Zimbabwe’s public debt.

Section 327 of the Constitution, as amended in 2021, provides that agreements with foreign entities which impose fiscal obligations on Zimbabwe are not binding until they have been approved by Parliament.

The Public Debt Management Act

Section 11(2) of the Public Debt Management Act [link] amplifies section 300 of the Constitution.  It states that the total amount borrowed by the Government in a financial year must not exceed a limit fixed either by resolution of the National Assembly or in a Finance Bill.  In any event the total amount borrowed and guaranteed in a financial year must not exceed 70 per cent of the country’s gross national product unless the Minister of Finance, citing special circumstances, has received permission from the National Assembly.

Section 36 of the Act further amplifies the Constitution by stating:

  • The Minister’s twice-yearly reports on the performance of State loans and guarantees, mandated by section 300 of the Constitution, must include:
  • information on how the Government’s debt management strategy has been implemented, evaluating the outcomes against the objectives of the strategy
  • a list of the Government’s guarantees, classified according to the likelihood of their being called in, and
  • a list of all outstanding government borrowings and related debt service projections.
  • The Minister must ensure that all external government loans are submitted to Parliament for ratification.

Regulations under the Act [link] fill in details.  They set out:

  • The general principles and procedures to be followed for the giving of guarantees by the State, and
  • The circumstances in which the State can assume liability for debts and the procedures to be followed for assuming them

The Constitution and the Public Debt Management Act, read with regulations made under that Act, seem to impose tight and comprehensive curbs on government borrowing.  So why did ZIMCODD approach the High Court?

ZIMCODD’S Claims

Put simply, ZIMCODD’s case was that the Government has disregarded the Constitution and the Public Debt Management Act.

In its application, ZIMCODD maintained that the Government has over the years been contracting debt without the prior approval of Parliament.  It noted that Zimbabwe had issued guarantees for domestic creditors in  ZW$ and for foreign creditors in US$It had also given guarantees for the debts of private companies in ZW$.

The majority of these State-guaranteed loans were for financing agricultural production but, as the Government admitted in official documents, loan repayments came to a paltry 15 per cent, meaning that 85 per cent of the debts had to be shouldered by the State as guarantor.  These loans were contracted without prior parliamentary approval.

ZIMCODD argued that the amount of debts being run up was unsustainable.

It should be noted that since ZIMCODD filed its papers the amounts they mentioned have increased.  In the Statement of Public Debt published on the 20th November 2022 during the presentation of the annual budget, the Minister of Finance estimated that as of September 2021 Zimbabwe had a public debt of US$17,6 billion, comprising external debt of about US$14 billion and domestic debt of about US$3,5 billion.

Government Concession

The respondents in the application – the Minister of Finance and Economic Development, Parliament and the Attorney-General – consented to the High Court granting the order sought by ZIMCODD [link].  By their consent they bound the Government to comply with the Court’s order.

Their consent is not surprising because, save in one important respect which we shall highlight later, the order does not compel the Government to do much more than it is obliged to do under existing law.

The Effect of the High Court Order

We summarised the Court’s order at the beginning of this bulletin and we shall go through its main points again here, noting how far they extend or amplify legal obligations the Government already has.

The Minister of Finance must, within 12 months, propose a limit for public borrowing envisaged in section 11 of the Public Finance Management Act.  The Minister is already obliged to do this by section 300 of the Constitution as read with section 11 of the Public Debt Management Act.

Within 12 months the Minister must publish a Bill amending the Public Debt Management Act to do the following:

  • It must outline the role of Parliament in approving State loans and guarantees before they are contracted.  This is the big change.  The existing law requires parliamentary approval to be given after loans and guarantees have been contracted.  If the new Bill is enacted, Parliament’s prior approval will be needed.
  • It must set out limits on State guarantees for the purposes of section 300 of the Constitution.  The Act already sets out these limits, as we have indicated above.
  • It must lay down the procedure by which Parliament ratifies or rejects loans and guarantees.  This is new.  It will be useful to lay down the procedure in a statute if Parliament has to approve loan and guarantee agreements before the Government concludes them.  The procedures will presumably cover such things as consultations between the Ministry of Finance and parliament’s Committee on Public Accounts.
  • It must lay down a procedure by which the State regularly updates Parliament on its debts, loans and guarantees.  The Constitution already obliges the Minister of Finance to update Parliament at least twice a year, but more frequent and more detailed updating will be helpful.

So the importance of the court’s order is that it binds the Government to amend the law so that:

  • Parliament approves State loans and guarantees before the Government gives them, and
  • Parliament is given more information about the State’s financial obligations and is generally involved more closely in the management of State finances.

It is indeed a landmark judgment, ZIMCODD is to be commended for taking the court case and the Minister of Finance and the Attorney-General are to be commended for consenting to it.

Conclusion

Amendment of the law will bring greater transparency and accountability to the management of public finances and will restore the role of Parliament, as the representative of the people, in overseeing how State resources are used.

We look forward to the Government and Parliament taking immediate steps to implement the High Court order, which according  to the court order must be implemented before 15th March 2024.

Download Document 

Tags