eBusiness Weekly
Business Writers
GOVERNMENT has said it will audit and verify the authenticity of liabilities it will assume under the US$1,2 billion historical or legacy debts to be taken over through the Reserve Bank of Zimbabwe (RBZ) at a rate of one to one between US and RTGS dollars.
Permanent Secretary for Finance and Economic Development George Guvamatanga told Business Weekly in an interview yesterday that while the final analysis in the total debt may not reach US$1,2 billion, the Government will verify the debts given its implications on overall debt to Treasury and the tax payer.
This comes as observers say taking over the debts by the central bank was akin to subsidising the private sector through measures that would eventually burden the tax payer who should eventually carry the cost of repaying the assumed legacy debts.
Some analysts believe the US$1,2 billion debt assumption perpetuates the culture of state subsidies that has been entrenched in this economy for many years, with the result always being the vulnerable and taxpayers having to pay through high inflation.
Things got complicated after Zimbabwe suddenly found itself in a dollar crunch, following dollarisation in 2009, which has forced the Government to revert to use of a domestic currency as the market threatened forced re-dollarisation.
Concerns also arise out of the fact that Government and the country as a whole is facing an acute US dollar liquidity crisis, which is constraining its ability to meet external payment obligations such as fuel, electricity, wheat and drug imports.
Further, Zimbabwe has equally onerous external obligations to multilateral lenders that include African Development Bank (AfDB), the World Bank, European Investment Bank and the Paris Club, part of its overdue US$7 billion foreign debt.
“Obviously, if the amount is US$1,2 billion as stated, it will increase the amount of Government debt. The difference between the US$1,2 billion and whatever the (interbank market exchange) rate is going to be, that is definitely Government debt.
At current interbank rate, the debt would be roughly $6,6 billion.
“But I don’t think everyone will be able to bring that money because some of the debts were paid a long time ago and they do not have that cash-flow. But as Government we will still verify, because eventually, Reserve Bank is an agent of Government.
“Whatever debt or liability that is assumed by the Reserve Bank of Zimbabwe, they assume it on behalf of the Government. So while we want professional independence of the Reserve Bank, as Government we will also have to verify the debts,” he said.
Guvamatanga said there were processes that must be followed before the central bank assumed the debts on behalf of the Government. As such the debt assumption would not necessarily be an automatic process. He, however, said had the debt not been taken over, the majority of companies that accrued foreign liabilities under the multi-currency regime before would essentially be rendered insolvent.
“If for instance a bank borrowed, extended loans to the public who repaid in RTGS dollars, even without forex to remit, the obligation remains with the bank.”
Former Government advisor and ex-University of Zimbabwe professor of economics, Ashok Chakravati said the central bank had done the “honourable thing” to assume the debts, as this was critical for the country’s global creditworthiness.
“These are debts that suppliers of goods and services from Zimbabwe could not remit. For instance, SA Airways issued tickets to Zimbabweans and received RTGS, . . . but there was no way to remit those funds and SAA is stuck.
“For Zimbabwe to maintain credibility with the international suppliers, we have to pay and there is no way out. Here, there is nothing right or wrong, we just have to pay, every country does it and we have done the right thing,” said Chakravati.
Economist Brains Muchemwa said the US$1,2 billion debt assumption by the RBZ was a huge inflation burden on the people of Zimbabwe that is already overtaxed.
“The fact that the differential between the bank rate and the debt assumption at 1:1 means that in total, more than $6 billion in state subsidies will need to be forked out to meet these obligations,” said Muchemwa.
Another economist, Dr Gift Mugano said in an interview it was apparent that the country needed policy consistency.
“What it means is as a country we need policy consistency in the future. This was caused by policy variability . . . (which) gives burden to the tax payer who has not been part of the equation. I think this was not the best decision,” said Dr Mugano.
Some analysts, however, believe tax payers were indirect beneficiaries of the delayed payments as the RBZ was only managing foreign currency outflows through prioritisation of key import requirements such as fuel, electricity, among others.
Had the RBZ not prioritised certain imports, the consequences would have been equally the same then as they are now.
