The Increased Debt Burden

Debt is burdensome. It torments haughtily. It is a yoke that once set creates generational bondage leaving individuals and families grasping for air and creates a vicious cycle of poverty.

One of the challenges of adult life is to live a debt free life and to never be forced into a corner of cowering to the vagrances of debt. The late nineties in Zimbabwe saw the mushrooming of the micro -lending institutions brought on by the devasting impacts of persistent drought, hyperinflation, joblessness and unemployment, reduced productivity, mismanagement, corruption and the emerging impacts of sanctions. Our present economy might lead the average person towards that unending evil cycle again. You see-debt is the gift that keeps on giving digging a deeper whole when the cycle is set in motion-You borrow and then pay the debt with an interest then you take again so that you can be able to survive. A sad scenario. With Covid-19 the urge to pile on debt can be overwhelming and unavoidable as bad situations become desperate. Financial institutions need to lend in order to remain viable and are quick to tap to opportunities presented by episodes like systematic shocks. They understand that such scenarios as presented by the pandemic create desperation and good business. Let the buyer beware and read the fine print. With Covid-19 there is a palpable desperation not only amongst individuals, but small businesses, companies and even governments-desperation for liquidity.

The lockdowns have taken a tremendous toll on the unemployment figures both for those in the formal sector and for those in the gig economy. Most people in Zimbabwe work in the informal sector with the bulk operating in open spaces and in vending lots. The bulk however had been operating in undesignated sites congesting the cities and overwhelming services in the CBD. Covid has presented authorities the opportunity to destroy these makeshift workstations in a bid to bring order and decongest the central business districts- unfortunately the bulk of those in the informal sector and transactional sector will have nowhere to operate from post lockdowns and will thus lose their sources of income when already the lockdowns would have put a burden on their resources. Without social protective systems people are beginning to borrow against non-existent future incomes. In rural areas some have started to sell their goats and cattle to purchase mealie meal and for relish purposes yet the situation is just beginning. A villager pointed out that in some outskirts were the harvest was better maize could be exchanged for used clothes- but clothes eventually run out. Others in cities will sell property or others will risk property in the long run when the Sheriff comes to collect. To avoid the precarious debt trap those who have lost jobs in cities might move to rural areas and leave unpaid bill’s with local councils that will take years to pay rendering some councils incapacitated and reducing the ability to give a credible service with these councils having to take drastic action such as legal action against defaulters. As El-earning begins some schools are offering elearning platforms but have still demanded school fees from now unemployed parents who have to run around and borrow creating an increased debt burden.

As governments create stimulus and relief packages not every company will benefit others will yet opt to close and declare bankruptcy rather than pile on an unsustainable debt burden. These will be the wise ones. Some businesses are passion businesses born out of great tribulation and the founders syndrome may mean letting go will be difficult and opting to borrow money with possible dire consequences in the future.

A lot of countries in Africa have started receiving bail-outs from multilateral institutions to help fight this pandemic and stimulate economies. The short term is immediate relief but an increased debt burden on future generations mortgaging whole countries resources and minerals to receive these stimulus packages. As money supply grows, as countries battle to keep economies from bleeding, inflation with its disadvantages will set in increasing inequalities.

How can individuals, companies and countries especially in the third world survive without increasing the debt burden on their shoulders and on future generations.

It’s important to reduce expenditures drastically, for those in towns and cities – this might entail reducing unnecessary amenities and the trappings of middle-income statuses like cable, going to the gym, eating out and takeaways. Growing a vegetable garden or patch might be sustainable ways of surviving and thriving in yards small as they might be and looking for cheaper energy options. Some of the steps might be as drastic as changing schools for children not necessarily to lower schools but to schools with less extracurricular activities and focus on the child receiving academic excellence instead of the whole package. Reducing house help and doing more of the extra chores than hiring-until this storm is over and the finances become steady because for now the ships are rocking.

Those in rural areas need to live of the land more focusing on gardening. Preserving the livestock that are still at childbearing age while willing to let go of older animals. At least in rural areas the bills are fewer but the entrenched poverty is higher. Younger people will need to find innovative sustainable ways of creating income without the pressure to move to cities or be border jumpers because the terrain will be the same no matter where they go.

Those who lose jobs might have to consider training in new skills, going back to school to be relevant and foster new cultures of learning. Everyone no matter who there are will need to tighten their belts very strongly until this storm is over.

Countries can adjust spending patterns to focus on service delivery which might mean reduced expenditures elsewhere. There is a need for innovative solutions rather than go for the easy path to borrow money. Borrowing to finance capital expenditure and infrastructure will be a better option than the financing of consumptive expenditure so that those in the future who have to service the debts benefit from infrastructure like improved transport networks, better amenities and hospitals, improved and qualified workforce. Otherwise debt for the sake of debt will spiral out of control and become a generational yoke.

Source: Sefelepelo Sebata*

*Sefelepelo Sebata is the Project Coordinator Rise N Shine Trust www.sfesebata.com