Govt set to take over RBZ debt

HARARE - Finance minister, Patrick Chinamasa, last week presented the Debt Assumption Bill, for consideration to Parliament. If adopted, the Bill will allow government to take over Reserve Bank of Zimbabwe (RBZ)’s debt.

The Bill seeks to authorise government to take over the debt incurred by the RBZ, adding the liabilities to be adopted incurred prior to December 31, 2008 and estimated at $1,35 billion.

“This debt has continued to hinder and compromise the Reserve Bank from effectively and efficiently discharging its mandate, especially the Lender of Last Resort (LOLR), bank supervisor, and deepening of the money and capital markets.

“There is, therefore, an urgent need to resolve the RBZ’s indebtedness in order to address the lack of confidence in the financial sector, including the Reserve Bank,” Chinamasa said.

The RBZ debt was accrued from financing quasi fiscal activities during the Zimbabwean dollar era.

Some of the activities included election-related expenses, transfers to parastatals, subsidised direct lending, subsidised cost provision of equipment and fertilisers to farmers and allocation of foreign currency at subsidised exchange rates.

“These expenses were financed by surrender requirements on export proceeds, the retention of earnings of gold and agricultural sectors in excess of mandatory surrender requirements, foreign currency deposits.

“They were also financed by external borrowing, purchase of foreign currency at the parallel market exchange rates and printing of money, which ultimately precipitated the hyperinflationary spiral that peaked in 2008 and beginning of 2009,” the Treasury chief said.

The breakdown of the debt which is subject to validation and reconciliation is $596,02 million external debt and $754,30 million domestic debt.

Chinamasa said government would assume the RBZ’s external debt to add to its stock of existing external debt of about $6,2 billion to be dealt with as part of deliberations with multilateral institutions and creditors who are members of the Paris Club and other bilateral creditors.

Government will also assume the $754,3 million domestic debt to add it to its existing domestic debt of $486,1 million, to give total domestic debt of $1,24 billion. The assumed debt is set to be paid through issuance of Treasury Bonds and other Government Paper to creditors.

The ministry of Finance, through the Debt Management Office, is in the process of validating and reconciling the debt.

“As such, figures in the Bill are subject to confirmation through the validation and reconciliation process. No claim shall be settled before it is validated by the ministry of Finance and Economic Development,” he said.

However, analysts and civil organisations believe government does not have capacity to assume the RBZ debt.

Most analysts say Treasury is already overburdened with foreign debt, while another segment has called for a public audit.

The argument is that the central bank must first carry out an audit and liquidate its noncore assets before government assumes the debt.

However, the Bankers Association of Zimbabwe is in support of the bill.

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