Bulawayo City Council is seeking authority from the Local Government ministry to borrow $4 billion arguing it has no capacity to fund its 2021 $10 billion capital budget to oil its operations.
Government is yet to approve the council’s 2021 budget of $17 billion with $10 billion set aside for capital expenditure and the remainder for salaries and other administrative costs.
Bulawayo residents last year opposed the council’s proposed $21 billion budget arguing the consultative process was flawed.
A latest council report, however, shows city fathers are crying that the local authority is financially incapacitated to fund the $10 billion capital budget, hence the need to apply for borrowing powers.
“Currently council has a capital budget of $10, 697,798,003.52 for the 2021 financial year.
“Council had no capacity to fund this capital budget from its own resources,” reads the council report.
“It was, therefore, imperative for the council to apply for borrowing powers of $4, 223,548,498.00 equivalent to US$51, 886,345.00 to fund various capital projects…”
In terms of Section 290 of the Urban Councils Act and Section 65 of the Public Finance Management Act, councils can apply for borrowing powers from the ministry of Local government for the acquisition or construction of permanent works or undertakings, the acquisition of immovable property, the making of advances authorised by this or any other Act, the payment of compensation, the liquidation of the principal moneys owing on account of any previous loan, the relief of general distress occasioned by some calamity in the council area and the acquisition of plant, equipment and vehicles.
Of the $4 billion, council said it will channel the largest chunk of $1,450,714,698 to water infrastructure rehabilitation and the remainder $332,910,000 (sewerage infrastructure), $863,450,000 (acquisition and development of land), $894,748,800 (roads construction and rehabilitation),$407,000,000 (landfill site new cell development) and $274,725,000 for the acquisition of plant, equipment and vehicles.
The Bulawayo Progressive Residents Association (BPRA), however, questioned the council’s wisdom in choosing the route of seeking a $4 billion loan.
“Borrowing in an economy that perhaps was functional and with a positive growth trajectory would have been fine particularly for funding expenditure. However, with the council’s poor project management performance as exhibited by past and current projects, a lot of questions really may need to be asked,” said BPRA budget consultant Ntokozo Tshuma.
“The general norm would have been to quantify the total debt (from funds borrowed) as percentage of local Gross Domestic Product (GDP) and the generaL standard of a safer amount normally should range between 2-3% of local GDP so if the funds to be borrowed become higher than this it creates challenges to the local authority in trying to liquidate the debt.”
The council minutes revealed that city fathers also turned down private funders, who wanted to lend the council US$100 million before settling for the easy route of applying for borrowing powers.
“As council they had been approached by a funder who was willing to lend council US$100m,” the council report added.
“The amount was too much and the council did not have the capacity to borrow and service the US$100m.
“The borrowing powers were a journey and as council there was need to show capacity to the ministry to pay.
“The motivation was the 3% and 3 years grace period.”
In June 2018, the council also applied for borrowing powers of US$100 million and US$26 million payable over 10 years pending improvement of the capacity to repay to cover various projects.-Standard