Political Philosophies of Public

Finance Management,
Government Intervention in
Markets and Public Debt
Management
Group Practice Question
Group A: Write a report to the Minister of Policy
advising when it is justifiable for Government to
intervene in the finance sector; provide relevant
examples. 20 Marks
Group B: Write a report to the Minister of Policy
advising when it is justifiable for Government to
intervene in the Energy sector; provide relevant
examples. 20 Marks
Group Practice Question Cont
Group C: Write a report to the Minister of Policy
advising when it is justifiable for Government to
intervene in the health sector; provide relevant
examples. 20 Marks
Group B: Write a report to the Minister of Policy
advising when it is justifiable for Government to
intervene in the mining sector; provide relevant
examples. 20 Marks
Objectives
● Explain the meaning of public finance management and the
philosophy underpinning public finance;
● Evaluate the objectives of public finance and the rationale for public
sector intervention in the market;
● Assess the scope of the public sector;
● Evaluate the principles that must guide public finance management in
Zimbabwe;
● Analyse the legal, regulatory and policy framework guiding public
finance management in Zimbabwe;
Introduction to Public Finance Management
● Public finances form an integral part of economic activities of any
country.
● Good public finance management systems are critical for achieving
sustainable high economic growth rates; improving the quality of
public service delivery; and ensuring burdens and benefits of the use
of resources are shared equitably between present and future
generations.
● Public finance management laws, regulations, policies and practices
govern the manner in which public sector organizations’ resources are
mobilized, spent, accounted for, reported and audited.
● There is need for every aspiring or practicing public sector
accountancy professional to understand the fundamentals of financial
management in the public sector context.
 Public Finance Management Module Content
● The public finance management cycle is commonly
conceived as a cycle of six phases namely, policy design,
budget formulation, budget approval, budget execution,
accounting and external audit.
● There are four fundamental pillars of financial management
in the public sector context, namely: Budgeting,
Accounting, Financial Reporting and Auditing.
● This Module concentrates on the first pillar - Public Sector
Budgeting.
● The other three pillars- Public Sector Accounting, Financial
Reporting and Auditing are covered in detail in other
modules of the Public Sector Accountancy Course.
Introduction
● Public finances form an integral part of economic activities of
any country.
● There are two main sectors in any economy, namely the
public and private sectors.
● The public sector refers to the apparatus of the state,
supplying goods and obligatory services to the public.
● The private sector on the other hand, is made up of
corporations and small businesses that also supply the public
with goods and services.
● A substantial part of the funding for the operations of public
sector organisations comes from taxing citizens and the
private sector.
Introduction
● The collection of funds from the private sector and citizens;
the spending of such funds; the accounting, reporting and
audit of the results achieved from use of these funds is
governed by a number of laws that public officials in the
public finance management value chain have to observe and
act in accordance with their provisions.
● To ensure transparency and accountability; equitable
distribution; efficient and effective utilisation and sound
management of public resources, public finance laws assign,
to a number of institutions and individuals in the public
finance management value chain, specific roles and
responsibilities management of public funds.
What is Public Finance Management?
Public finance is nothing else than a sophisticated discussion of the
relationship between the individual and the state…..
Former Czech Prime Minister Vaclav Klaus
● Public finance form an integral part of economic activities of any country.
● Public finance reflects the relationship between the citizen and the state.
● Public Finance is the study of the goods and services provided through the
public sector and their financing.
● Public finance comprises of any revenue or expenditure passing through state
budgets, derived from whatever sources and however spent.
What is Public Finance
Management?...cont
● Public finance management is concerned with the laws,
organizations, systems and procedures available to
governments wanting to secure and use resources effectively,
efficiently and transparently.
● Public finance management encompasses taxes and other
government revenue, borrowing and debt management.
Distinction between public and private finance

• For funds to qualify as public finance, the monies have to be

accounted for within state budgets at the three tiers of
government (national, provincial and local)
• Private finance on the other hand comprises any revenue or
expenditures that is not accounted for through state budgets
irrespective of their source and however spent.
Similarities between public and private
finance
● There are a number of similarities between public and private finance:
○ They both seek to satisfy human wants with public finance
addressing collective wants and private finance satisfying personal
wants.
○ They both pursue maximum satisfaction.
○ They both resort to borrowing where expenditure exceeds income.
○ They both face the challenge of unlimited wants yet the resources
to fulfill them are scarce.
Differences between public and private
finance
● Resource Availability ● Resources mobilisation
● Business Motive ● Expenditure management
● Return on Investment ● Equi-marginal utility
● Budget Information ● Budget deficit
● Methods of raising revenue
Public Finance and Public Policy
● The distinction between public and private finance is not just based on
accounting rules.
● Whether an item of revenue or expenditure enters public accounts, depends
upon public policy decisions about citizen’s rights to services and how access to
those services should be enabled.
o The first question is whether citizens have rights to receive particular
services deemed essential for their livelihoods (e.g. access to health services
or education); and
o if the state is required to make financial provision in order for those rights to
be secured.
Public Finance and Public Policy...cont

● If citizen do not have rights (whether explicit or implicit) then no public

finance is required.
● Where such rights exists, public finance is required to secure those
rights.
● The amount required to secure citizens’ rights is determined by the
options the state adopts for public service delivery.
○ through direct provision by the state; or
○ the state enables services to be provided by the private or
voluntary sectors.
● These public policy decisions reflect the dominant political philosophy
within a country.
Philosophy underpinning public finance
management
● The relationship between the state and citizens has a bearing on the nature and
scope of public finance management.
● Three broad categories of political philosophies underpin public finance
management, namely libertarian; neo-liberal; and collectivist.
● Each philosophy has evolved over time and there are no clear categorical
boundaries between the three categories.
 Philosophy underpinning public finance
management...cont
❑Libertarian Philosophy- also referred to as classical liberal theory
● Developed in the 18th and 19th century by Hume, Smith, Bentham and Mill
● Proponents for Libertarian role of public finance advocate for a citizen-state
relationship “allowing autonomous citizens to exercise full individual
responsibility for their own standard of living whilst remaining totally free of
state control”.
● The argument is that government intervention in the economy is
counterproductive and the private sector, and private finance, should be
relied upon to provide citizens with the services they are willing and able to
pay for.There must be minimal public finance and the state should only
intervene to protect citizens from coercion, interference and discrimination
Philosophy underpinning public finance
management...cont
❑The neo-liberal philosophy-also known as modern liberal theory
● Developed in the twentieth century
● Proponents of the neo-liberal role of public finance advocate for a citizen-state
relationship “enabling responsible citizens to have the potential to secure an
adequate standard of living by affording them equality of opportunity in the
marketplace”.
Philosophy underpinning public finance
management...cont
❑Collectivist thinking- also known as the civic theory
● Synonymous with the communist theory
● Developed by Marx in the twentieth century and subsequently further advanced
by neo-marxists
● Proponents of the Collectivist role of public finance advocate for a citizen-state
relationship “guaranteeing protected citizens adequate standards of living
through direct state control of their everyday lives in terms of access to and
outcomes from state provided services.”
Comparative Analysis of the Philosophical
Principles underpinning Public Finance
● Each of the philosophies has evolved over time and there are no clear
categorical boundaries between the three citizen-state relationship categories
● What differentiates the philosophies are:
❖the defining features;
❖beliefs;
❖general implications;
❖implications for the public sector; and
❖implications for public finance.
 Comparative Analysis of the Philosophical
Principles underpinning Public Finance...cont
● Defining features of the Philosophies
Libertarian Neo-liberal Collectivist Thinking
Classical liberal theory Modern liberal theory Civic theory

• Autonomy of the individual • Primacy of the individual • Mutual dependence

• Unregulated markets • Modified markets • Reject markets
• Negative rights only (freedom • Negative plus limited • Full positive rights (social
from coercion, interference, positive rights and economic rights)
discrimination)
• Laissez-faire state • Enabling state • Provider state
• Capitalism • Mixed economy • Socialism
 Comparative Analysis of the Philosophical
Principles underpinning Public Finance...cont

● Beliefs
Libertarian
Classical liberal theory
• The state is corruptible
• Taxation is confiscation
• Moral hazard/dependency
culture
• No moral case for equality
• Private property rights are
inviolable
Neo-liberal Collectivist Thinking
Modern liberal theory Civic theory
• The state is a necessary evil • Benevolent state
• Taxation for efficiency • Taxes for social aims
• Promote human capital • Build social capital
• Equality of opportunity • Equality of outcome
• Property rights reflect policy • Property is theft
aims
Comparative Analysis of the Philosophical
Principles underpinning Public Finance...cont

● General implications

Libertarian Neo-liberal Collectivist Thinking

Classical liberal theory
• No such thing as society
• Private enterprise guarantees
rights
• Individuals are consumers not
citizens
• Depend on charity and active
citizen
Modern liberal theory
• Weak conception of society
• Modified market rights
• Individuals primarily
consumers
• State supplements
charity/voluntary action
Civic theory
• Society emphasised
• State confers rights
• Citizens firstly
• State replaces charity
 Comparative Analysis of the Philosophical
Principles underpinning Public Finance...cont

● General implications

Libertarian Neo-liberal Collectivist Thinking

Classical liberal theory
• No such thing as society
• Private enterprise guarantees rights
• Individuals are consumers not
citizens
• Depend on charity and active citizen
Modern liberal theory
• Weak conception of society
• Modified market rights
• Individuals primarily
consumers
• State supplements
charity/voluntary action
Civic theory
• Society emphasised
• State confers rights
• Citizens firstly
• State replaces charity
 Comparative Analysis of the Philosophical
Principles underpinning Public Finance..cont

● Implications for the public sector

Libertarian Neo-liberal Collectivist Thinking

Classical liberal theory Modern liberal theory Civic theory

• Minimal state • Heavily constrained state • Expansive state

• Enforces only negative rights
• Private sector provision of public
services
• Minimal welfare state
• Private insurance
• Some limited positive rights
• Private or public sector
provision
• Conditional welfare state
• Public plus private insurance
• Full positive rights
• Public sector provision
• Unconditional welfare
• Public insurance
 Comparative Analysis of the Philosophical
Principles underpinning Public Finance...cont

● Implications for public finance

Libertarian
Classical liberal theory
• Minimal public finance
• Private spending replaces public
spending
• Minimise ‘burden of taxation’
• Regressive taxes
• Borrowing and public debt very
limited
Neo-liberal
Modern liberal theory
• Restrained public finance
• Seek additionality of public
spending
• Tax ‘bads ’ not ‘goods ’ for
efficiency
• Proportional taxes
• Borrowing/debt for efficiency
purposes
Collectivist Thinking
Civic theory
• Unrestrained public
finance
• Public replaces private
spending
• Redistributive taxes for
equity
• Progressive taxes
• Borrowing/debt for welfare
The scope of the Public Sector
❑IMF Definition

● General Government ❑ IIA Definition

○ Central Government
○ State/provincial government
○ Local Government
○ Social Security Fund

● Public Corporations
○ Public nonfinancial corporations
○ Public financial corporations
The scope of the Public Sector in Zimbabwe

● Central government; ● Statutory bodies;

● Commissions; ● Government-controlled
● State institutions; entities;
● Government agencies; ● Provincial and metropolitan
councils; and
● Local authorities.
Objectives and justification for Public Sector
Intervention in the Market

● The importance of the public sector lies in the provision of basic needs such as
healthcare, education, peace and security.
● The main objective of public sector is to provide services to the public.
● The broad objectives of the public sector’s intervention in the market include
economic, social and political goals.
Objectives and justification for Public Sector
Intervention in the Market...cont

● Seidman (2009) identifies a number of reasons that justifies the need

for the public sector to intervene in the operations of the private
sector “free market”.
● Some of the reasons include:
● Market failure;
● Management of the economy;
● To help create necessary infrastructure for economic development;
Objectives and justification for Public Sector
Intervention in the Market...cont
● To promote import substitutions while saving foreign currency
earnings for the economy;
● To promote redistribution of wealth and income; and
● To earn a return on investment and utilize resources for development
Risks of Public Sector Intervention in the
Market
● There is a risk that public finance intervention in the “free market” may not
result in any improvement and may be ineffective and detrimental.
● Public sector intervention comes at a cost as all public sector
intervention is funded from the taxation of individuals and businesses.
● Raising revenues through taxation distorts markets, which makes them
less efficient, and has a deadweight cost.
Risks of Public Sector Intervention in the
Market...cont
● There is need to demonstrate that public finance intervention in the
market will make an improvement and the benefits of intervention will
exceed the costs.

● Public finance intervention in the “free market” is more likely to be

effective when it addresses the cause of the market failure, and where
it seeks to improve the functioning of the market rather than
supplanting it.
Risks of Public Sector Intervention in the
Market...cont
● Adam Smith gives four justifiable reasons for state intervention in the
market: The four reasons relate to the following:
– national defence that arises from the duty to protect the society
from violence and invasion from other independent states-;
– police arising from the duty to protect every member of society from
injustice, overall maintaining law and order;
– education, health and infrastructure arising from the duty of
establishing and maintaining public institution and public works
which would not be supplied adequately by private enterprise e.g.
schools, roads; and
– State expenses arising from the duty of meeting state expenses for
the support of its sovereignty.
 Principles of public finance management in
Zimbabwe
● Section 298 of the Constitution codifies the principles of public financial
management that govern the conduct of public officials.
● transparency and accountability in financial matters;
● the need to direct the public finance system towards national
development;
● the fair distribution and sharing of the burden of taxation;
● the equitable sharing of revenue raised nationally between the central
government and provincial and local tiers of government;
● the need to make special provision for marginalised groups and areas in
the allocation of resources;
Principles of public finance management in
Zimbabwe...cont
● The equitable sharing, between present and future generations, of the burdens
and benefits of the use of resources;
● The need to expend public funds transparently, prudently, economically and
effectively;
● The need for clear and responsible financial management and fiscal reporting;
and
● The need to ensure that public borrowing and all transactions involving the
national debt are carried out transparently and in the best interests of
Zimbabwe.
 The legal, regulatory and policy framework for
public finance management

Supreme Source of law. Constitution

Statutes implement
Public Finance Public Debt
Constitutional
Management Act Management Act
provisions

Subsidiary legislation Public Finance

implement statutory Public Debt
Management
provisions Management
Regulation
The legal, regulatory and policy framework for
public finance management...cont

● The Constitution of Zimbabwe

○ The Constitution is the supreme source of law.
○ Any law, practice, custom or conduct inconsistent with
constitutional provisions is invalid to the extent of the
inconsistency.
○ The provisions of Chapter 17 of the Constitutions dictates the
crafting of Acts of Parliament, regulations, policies, and procedures
governing public finance and accounting in Zimbabwe.
The legal, regulatory and policy framework for
public finance management...cont

● Statutes implement or give effect to constitutional provisions on public

sector finance and accounting.
● All statutes are enacted by Parliament .
● All statutes must be aligned to constitutional directives.
The legal, regulatory and policy framework for
public finance management...cont

❖Public Finance Management Act ❖Public Entities Corporate

[Chapter 22:19]. Governance Act [Chapter 10:31].
❖Audit Office Act [Chapter 22:18].
❖Finance Act [Chapter 23:04]. ❖Reserve Bank of Zimbabwe Act
[Chapter 22:15].
❖Public Debt Management Act ❖Public Procurement and Disposal of
[Chapter 22:21] Public Assets Act [Chapter 22:23].
❖Urban Councils Act[Chapter 29:15]
❖Appropriation Act. ❖Rural District Council
❖Companies Act [Chapter 24:03]. Act[Chapter 29:13]
❖Joint Venture Act [Chapter
The legal, regulatory and policy framework for
public finance management...cont

❑Public Finance Management Act [Chapter 22:19]

● The Public Finance Management Act is the main statute that govern
public finance management.
● In the event of any inconsistency between the Public Finance
Management Act and any other legislation, the Public Finance
Management Act prevails.
The legal, regulatory and policy framework for
public finance management...cont

❑Public Finance Management Act [Chapter 22:19]

● The objectives of the Public Finance Management Act is to:
○ secure transparency, accountability and sound management of the
revenues, expenditure, assets and liabilities of public sector entities.
● The Act provides for the following:
○ control and management of public resources and the protection and
recovery thereof;
○ the appointment, powers and duties of the Accountant-General and of his
or her staff;
○ the national budget;
The legal, regulatory and policy framework for
public finance management...cont

❑Public Finance Management Act [Chapter 22:19]

● the preparation of financial statements;
● the regulation and control of public entities
● general treasury matters;
● the examination and audit of public accounts;
● matters pertaining to financial misconduct of public officials.
The legal, regulatory and policy framework for
public finance management...cont

❑Subsidiary legislation/Regulations
● These are statutory instruments (SIs) issued in terms of the provisions
of a specific Act of Parliament.
● Examples of Regulations include the following:
❖Public Finance Management (General) Regulations, 2019;
❖Public Service Regulations (SI 1 of 2000, as amended); and
❖Public Procurement and Disposal of Public Assets Regulations (SI. 5
of 2018)
 Public Sector Public Debt Management
● Debt financing is an important source of funds for any organisation.
● The disadvantage of debt financing is that apart from capital
repayments, it also places debt servicing burden on internally
generated funds.
● Given the size of the public sector in any economy, public borrowing
on the domestic market may result in the crowding out of the private
sector and this may cause instability in the market. It is therefore
important that public sector borrowing is kept within sustainable
limits for the benefit of the economy.
● Parliament enacted the Public Debt Management Act to ensure that
the financing needs and payment obligations of the state and its
entities are met at the lowest possible cost over the medium to long
term, with a prudent level of risk, and to promote development of
the domestic debt market.
 Defining Public Debt
● According to Section 2 of the Public Debt Management Act
public debt comprises domestic and external:
○ Government debt, lending and guarantees;
○ local authority debt, lending and guarantees;
○ public entity debt, lending and guarantees; and includes
the debt of any other entity as the Minister may specify by
notice in the Gazette.
● The PFMR describes public debt as amounts owing under
loans raised according to the Public Debt Management Act
and includes the arrears of all ministries and public entities,
in relation to payments that are overdue and not made by
the due date.
 Responsibility for managing debt
● The management of public debt is centralised and the
responsibility lies with the Public Debt Management Office within
Treasury.
● The functions of the Public Debt Management Office are specified
in Section 5(2) of the Public Debt Management Act and some of the
functions are to:
○ prepare and publish a Medium Term Debt Management
Strategy;
○ prepare and publish an annual borrowing plan;
○ advise the Minister on all Government borrowings;
○ undertake annual debt sustainability analyses;
○ assess the risks in issuing any guarantees, including assessing
the capacity of the beneficiary of a guarantee to repay the loan,
and to prepare reports;
Responsibility for managing debt...cont
– prepare annual reports on outstanding guarantees, and facilitate the
recovery of any payments including interest and any other costs
incurred by Government;
– prepare reports on the debt of local authorities and public entities; as
well as assess, monitor and keep track of debt levels of all local
authorities and public entities;
– compile, verify and report on all public debt arrears, especially
Government public debt arrears, and design a strategy for the
settlement of these;
– prepare forecasts on Government debt servicing and disbursements
as part of the yearly budget preparations;
– maintain and administer a secure computerised debt management
information system;
– initiate, facilitate and monitor disbursements on borrowings and on
lending; and
– analyse requests from local authorities and public entities for
borrowings.
 Responsibility for managing debt...cont
❑Debt Management Committee
• Section 7 of the Public Debt Management Act,
establishes a Debt Management Committee that
reports to the Minister of Finance.
• The Committee, which is chaired by the Secretary for
Finance, comprises of the Governor of the Reserve
Bank; the Attorney General and any other person
whose expertise the Committee may require.
• The Committee meets at least once every calendar
month and the Public Debt Management Office acts as
the secretariat to the Committee.
 Responsibility for managing debt...cont
❑Debt Management Committee
• The functions of the Committee are to
– make recommendations to the Minister on public
debt management policy and strategy;
– make recommendations to the Minister concerning
all external borrowings, domestic debt issuance and
guarantees;
– advise the Minister on all policy natters relating to
public debt management;
Debt management strategy
● Section 8 of the Public Debt Management Act obliges the
Minister of Finance to formulate a Medium term Debt
Management Strategy for managing the public debt.
● The development of the Medium Term Debt Management
Strategy is informed by the debt management objectives of
the Act and takes into account:
○ the existing public debt portfolio especially (but not
exclusively) the Government component of the public
debt portfolio;
○ the macroeconomic framework;
○ the future borrowing requirements of Government; and
○ domestic and international economic and financial
conditions.
Legal and policy framework on borrowing
❑Borrowing powers
● The Minister responsible for Finance, with the authority of
the President, has the sole responsibility to borrow on behalf
of the Government of Zimbabwe.
● The authority to borrow money or issue a guarantee,
indemnity or security or enter into any other transaction that
binds or may bind the Consolidated Revenue Fund to any
future commitment is solely vested with the Minister
responsible for Finance.
● No other person, local authority or public entity shall, without
the prior and written approval of the Minister for Finance,
raise any loan or issue any guarantee, government security or
take any other action which may in any way either directly or
indirectly result in a liability being incurred by Government.
Legal and policy framework on borrowing
❑Borrowing powers
● The Minister responsible for Finance has the sole
authority to conclude loan agreements; issue
Government securities; enter into supplier credit
agreements; and issue Government guarantees in
Zimbabwe in both local and foreign currencies. .
● Treasury is empowered, if satisfied that it is in the
public interest to do so and in order to maintain the
public debt at sustainable levels, review or revoke any
unutilised borrowing authorisations.
Legal and policy framework on borrowing...cont
❑Limits on Borrowing
● The aggregate amounts that Treasury can borrow in any
financial year must not exceed the limit fixed by the National
Assembly. It is a requirement that the limit is proposed by the
Minister to the National Assembly for approval by resolution
or by means of a provision in a Finance Bill.
● The External and Domestic Debt Management Committee is
expected for each financial year to set forth the recommended
maximum amount of new Government borrowing and
Government guarantees which may be undertaken
throughout the year
● The Minister takes into account the Committee's
recommendations when exercising his/her right on borrowing
or making any proposal to the National House of Assembly.
Legal and policy framework on borrowing...cont
❑Limits on Borrowing
● It is the responsibility of Treasury to ensure that the fixed
limit does not result in the total outstanding public and
publicly-guaranteed debt, as a ratio of the gross domestic
product at current market prices, exceeding 70 per cent at
the end of any fiscal year.
● Borrowing limits can only be exceeded in situations where
Treasury obtains a resolution of the National Assembly to do
so under one or more of the following conditions:
○ where there is an occurrence of natural disasters or other
emergencies requiring exceptional expenditure;
○ where a large investment project in the public sector is
deemed by Cabinet to be timely and prudential; and
○ in case of a general economic slow-down requiring fiscal
and monetary stimulus.
Legal and policy framework on borrowing...cont
❑Borrowing by local authorities and public entities
● According to the provisions of section 22 of the Management
Act a local authority or a public entity may borrow funds only
within Zimbabwe; only up to limits prescribed by the Minister
of Finance; and upon receiving a resolution of the governing
body ( council, board or other governing body).
● The Minister of Finance may, after consultation with the
Minister responsible for Local Government, prescribe annual
borrowing limit for each local authority based on local
authority’s capacity to repay and any other considerations as
the Minister may determine.
● A local authority intending to borrow above the prescribed
threshold may, upon obtaining a resolution of its governing
board (council, board or other governing body ), obtain prior
approval from the Minister of Finance through the Minister
responsible for Local Government.
Legal and policy framework on borrowing...cont
– All borrowings of a local authority or a public entity shall be subject to
the prior approval of the Minister and relevant Minister responsible for
that particular local authority or public entity.
– Local authorities and public entities are required to submit to the
Public Debt Management Office, no later than ten working days from
the date of signing of a loan agreement or obtaining an overdraft, a
record of their borrowing. They should also submit monthly, quarterly
and annually on their total outstanding debt.
– It is a requirement that local authorities and public entities that
procure government guarantees or on lending facilities submit to the
Public Debt Management office, the annual accounts and any reports
and documents as may be required by the Office during the
subsistence of such guarantee or on lending.
Legal and policy framework on borrowing...cont
❑Purpose for borrowing
● The purposes for which the statute governing debt permits
borrowing on behalf of Government includes the following:
○ to finance national priority infrastructure and productive
sector projects with high economic and social impact
provided debt shall only be incurred on projects that can
generate sufficient revenues to repay the loan;
○ to finance Government budget deficits;
○ to maintain a credit balance on the Treasury main account
at a level determined by the Minister;
○ to provide such Government loans or credits to local
authorities, public entities and any other entities as defined
by legislation;
Legal and policy framework on borrowing...cont
❑Purpose for borrowing
– to honour obligations arising under Government
guarantees;
– to refinance outstanding debt or repay a loan prior to its
date of repayment;
– to immediately protect, mitigate or eliminate effects
caused by a natural or environmental disaster or any
other national emergency;
– to replenish international reserves;
– to meet requests by the Reserve Bank to issue
Government securities for the sole purpose of
supporting monetary policy objectives; and
– to fulfil any other purpose as the National Assembly may
by resolution approve.
Legal and policy framework on borrowing...cont
❑Policy on raising loans
● Treasury is required to raise loans upon such terms and
conditions as to interest, repayment or otherwise as may be
negotiated by the Minister responsible for Finance and in the
manner prescribed in the Public Debt Management Act.
● The methods that are used for raising loans include:
(a) loans; or
(b) the issue of bonds or stock; or
(c) the issue of Treasury bills; or
(d) an advance or bank overdraft; or
(e) a combination of any of the above.
Legal and policy framework on borrowing...cont
❑Policy on raising loans
● Prior to borrowing money, the Minister of Finance is obliged to:
○ ensure that it is in the public interest to do so;
○ ensure that it is consistent with Government economic and
financial policies and the Medium Term Debt Management
Strategy
○ satisfy himself or herself that the Government has or is likely to
have on current projections the financial ability to meet all the
obligations under the loan, including future loan payments;
○ consult with the Attorney-General and obtain in writing from
the Attorney- General an opinion approving the legal aspects of
the loan agreement.
Legal and policy framework on loan guarantees
● Treasury is required in such manner and upon such conditions
as they think fit on advice of the External and Domestic Debt
Management Committee and the Public Debt Management
Office, guarantee the repayment of the capital of, and the
payment of expenses or charges incurred on or in connection
with any indebtedness or other financial obligation raised,
incurred or established, as the case may be, inside or outside
Zimbabwe in accordance with the provisions of Section 20 of
the Public Debt Management Act.
● Treasury should prescribe any fees that may be payable by a
beneficiary of a Government loan guarantee, including fees
payable on the fulfilment of a guarantee.
Legal and policy framework on loan guarantees...cont
● Treasuryshould direct the manner in which the beneficiary of
the loan guarantee must reimburse or pay Government, as the
case may be for:
○ all moneys paid by Government to fulfil the guarantee;

○ allexpenses incurred by Government in relation to the

guarantee;
○ intereston all moneys paid by Government to fulfil the
guarantee; and
○ any fees prescribed by the Minister.
Legal and policy framework on loans and guarantees...cont
● Treasury is required to published by notice in the Gazette, the
terms of a loan or guarantee agreement that Government has
concluded, within sixty days of such agreement.
● Where a guarantee is given the Minister shall lay the
guarantee before the National Assembly or the Public
Accounts Committee in accordance with the provisions of
Section 29 of the Public Debt Management Act.
● Public entities or local authorities are required to submits to
the PDMO a record of the public entity or local authority’s
borrowing no later than ten working days from the date of
signing of a loan agreement or obtaining an overdraft, as the
case maybe.
Reporting public debt activities
● Public entities or local authorities are required to submit to
the PDMO monthly, quarterly and annual accounts and
reports together with any documents as may be requested,
on their total outstanding debt, government guarantees or
on-lending facilities during the subsistence of such guarantee
or on-lending.
● The PDMO is required to prepare monthly, quarterly, and
annual report on state loans and guarantees and submit
these reports to the Secretary for Finance and the
Accountant General within thirty days of the respective
month, quarter or year concerned.
Reporting public debt activities...cont
● The contents of the report should disclose:
○ the loans obtained in the respective year and month;
○ the loans that have been repaid during that year and
month; and
○ the total amount of loans outstanding at the end of
that year or month.
● Treasury is required, at least twice a year, to furnish
Parliament with a report on Government debt
management activities, guarantees and lending.
Reporting public debt activities...cont
● The report to Parliaments should be inclusive of the following:
○ information on how the debt management strategy has
been implemented over the course of the financial year;
○ bi-annual reporting of debt management activities covering
an evaluation of outcomes against the debt management
objectives;
○ a list of all guarantees issued by Government including a
classification of guarantees according to their probability of
being called in; and
○ a list of all outstanding borrowings and related debt service
projections including classification of the loans by
Government, public entities and local authorities
Reporting public debt activities...cont
● The report to Parliaments should be inclusive of the following:
○ information on how the debt management strategy has
been implemented over the course of the financial year;
○ bi-annual reporting of debt management activities covering
an evaluation of outcomes against the debt management
objectives;
○ a list of all guarantees issued by Government including a
classification of guarantees according to their probability of
being called in; and
○ a list of all outstanding borrowings and related debt service
projections including classification of the loans by
Government, public entities and local authorities.
Establishment of Sinking Funds
● Section of 32 of the Public Debt Management Act
permits Treasury to establish sinking funds for the
purpose of redeeming State loans unless they are
satisfied that arrangements for the repayment of
the State loans are such as not to require the
establishment of sinking funds.
● Where a sinking fund has been established, the
payments into such a fund should be made out of
the Consolidated Revenue Fund.
Questions