The Sunday Mail
– Govt repays US$111m to international creditors
– US$600m channelled to grain, drugs, water chemicals
GOVERNMENT is mulling amendments that effectively grant banks immunity against claims made for monies seized by the Reserve Bank of Zimbabwe prior to December 31, 2008 as part of broad measures being considered in the RBZ Debt Assumption Bill 2014.
The Bill, submitted to Parliament in April this year, seeks to transfer the US$1,3 billion the RBZ owes to central Government, which in essence means every Zimbabwean — young and old — will take up about another US$100 in fresh debt.
In October 2007, RBZ Governor Dr Gideon Gono directed all foreign currency accounts be transferred to monetary authorities.
This saw the central bank making use of privately held foreign currency balances. As such, banks found themselves suddenly owing depositors whose money had been appropriated by the RBZ.
And last year, Supreme Court judge Justice Vernanda Ziyambi made a landmark ruling that Standard Chartered Bank of Zimbabwe should pay Chinese firm Shougang International US$48 000 that had been transferred and used by the RBZ.
Other banks feared that the floodgates would be opened with creditors besieging them for money used by the central bank.
At the same time, Government was moving to protect the RBZ by assuming its debt.
Section 4(4) of the proposed Bill states that “no action or proceeding shall be commenced or continued against the Reserve Bank of Zimbabwe in respect of a prior debt assumed by the Minister (of Finance) on behalf of the State”.
Now RBZ Governor Dr John Mangudya has said banks have raised a valid concern in saying they, too, require protection from creditors.
In interview with The Sunday Mail Business, he said:
“We are happy that Government has shown commitment by starting to pay some debtors. We need to have a holistic approach so that we assist the companies whose money was borrowed. For example, if we pay companies like Metallon Gold, it will automatically mean our gold production will rise as that money will go towards production . . .
“They (banks) are raising a valid point that we need to extend the protection from litigations to financial institutions. The recommendation will be considered as we seek to fine tune the Bill.”
Last week, the Parliamentary Portfolio Committee on Budget and Finance put the proposed legislation to test through public hearings in Gweru, Mutare, Bulawayo and Harare.
Grumblings of civil society
The Zimbabwe Coalition on Debt and Development, a lobby group, says there is need for a Public Debt Commission to debt audit public debt before any relief mechanism can be considered for RBZ.
“There is need to know the beneficiaries and the extent to which many people have benefited. In the Schedule attached to the Bill, a list of debts to be assumed by the Government has been given hence this information is not enough as it is void on who actually benefited in terms of sectors,” said ZIMCODD.
Government has a Debt Management Office in the Finance Ministry presently working to validate the debt.
The Schedule attached to proposed Bill indicates that an estimated US$600 million debt was accrued by paying for emergency grain and drought mitigation efforts.
Some funds went to fuel and water treatment chemicals, with a sizeable chunk also being used on pharmaceutical drugs and seeds.
Embassy staff were paid from the foreign currency the RBZ gathered.
About US$70 million was taken from corporate foreign currency accounts, but the debt has soared to US$131 million with interest. US$67 million was taken from the accounts of parastatals and State enterprises, and the interest on this is US$32 million.
In addition, obligations owed to platinum miner Mimosa and Metallon Gold have risen to US$57 million and US$34 million, respectively.
There is a huge concern about US$25 million taken from Meikles with Government unsure what the RBZ management under ex-governor Dr Gideon Gono used that money for.
Meikles has since been repaid part of the money. Oddly though, while the Schedule attached to the Bill indicates that the RBZ’s debts to Meikles are US$40 million, the company said in its recent annual report that the money due had risen to US$90 million after interest negotiations.
Chairman of the Parliamentary Portfolio Committee on Budget and Finance Mr David Chapfika said he would table in Parliament some of the recommendations from the public.
There is a growing push for those who benefited from the various quasi-fiscal activities undertaken by the RBZ to repay what they owe, including machinery availed under the farm mechanisation programme — which saw the central bank facilitating importation of equipment.
The debt also reflects facilities accessed through international financiers and institutions.
The Reserve Bank of Malawi, for example, is owed US$16,7 million; while China Eximbank is owed US$45 million. There is US$43 million due to Afreximbank accessed through FBC Bank.
Government has taken over the facilities owed to international financers and has been making repayments since 2010 and about US$111 million has been paid so far.
Cumulatively, by April this year, US$146 million of validated RBZ liabilities had been repaid.
Payments are presently being liquidated through the issuance of Government-backed debt instruments and/or bonds.
In a letter of intent and technical memorandum of understanding dated July 1, 2014 signed off by the Finance Minister Patrick Chinamasa and Dr Mangudya, and addressed to IMF managing director Ms Christine Lagarde, Government indicated that the transfer of liabilities to central Government would help minimise risks in the financial sector.
“In recognition of the importance of a strong central bank to financial stability, the RBZ Debt Assumption Bill was submitted to Parliament in April 2014. It provides for the restructuring of the RBZ balance sheet by transferring its non-core domestic and foreign liabilities total ling US$1,35 billion to the central government.
“In this regard, the (Finance Ministry) issued in late March and in April 2014, securities to repay US$146 million of the validated RBZ’s liabilities. In implementing the debt assumption process, the Government of Zimbabwe is guided by a strategy to minimise potential fiscal risks and to avoid the concentration of maturities.”
By shearing off the huge debts from the central bank’s balance sheet, Goverment is trying to make it attractive to financiers. Efforts are being made to capitalise the RBZ so that it can ably play its role as lender of last resort.
Tradeability of bonds
Since January, Government has issued a cumulative US$406 million in Treasury Bills, with the bulk pertaining to the RBZ debt takeover programme.
Encouragingly, Government has been able to settle Treasury Bills worth US$213 million since 2013 on maturity, including capital and interest on paper issued in 2012 in lieu of statutory reserves.
Meikles says the take-up of Government’s debt instruments by financial institutions is encouraging, though foreign banks seem reluctant to trade in them.
“We are in receipt of Treasury Bills of US$49,6 million and have been advised by the relevant authorities that upon completion of their required processes, Treasury Bills of similar terms to those already in our possession will be issued for the balance.
“The company has been testing its ability to market the Bills in the local market. Efforts to date have focused largely on local banks. Some significant success has materialised from these efforts. Foreign banks operating in Zimbabwe have failed so far to demonstrate an appetite for the Bills.
“There has been positive interaction with local financial institutions outside of banks. These institutions are likely to have a longer investment time frame capacity than banks. This interaction is progressing and subject to some revision of the terms of the Treasury Bills, success looks possible,” explained Meikles in its annual report.
