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RBZ debt: The untold story

by Gono
08 Nov 2011 at 12:19hrs | Views
Introduction and background

The past few days have witnessed a renewed interest in and discussion of the RBZ US$1,1 billion debt through forums such as the Parliamentary Portfolio Committee on Budget and Finance, the Bankers' Association and the media in general.

So distorted are the facts behind the bank's debt profile that in some quarters, the belief is that RBZ and my management team spent US$1,1 billion either buying tractors and scotchcarts (mechanisation programme) or simply went on a debt contracting spree and blew away the money in support of non-existent programmes or at the worst, the whole amount is a Gono debt which he must find a way to repay. One newspaper editorial headline could not have driven home better the misconception about this whole issue than by screaming "Gono must pay" and went on a frolic of its own.

The following write-up is aimed at reminding the nation how difficult the last 10 years have been and somehow shed a bit of light into the RBZ debt issue.

Ministerial authority to incur debt, negotiate foreign lines and other forms of credit to finance Government programmes

    Upon assumption of duty as Governor on December 1, 2003 and realising the mountain of challenges that lay ahead in the area of forex availability to meet the Government requirements, it became an imperative that over and above the erratic export-surrender levels that the RBZ on behalf of Government imposed on exporters, additional foreign currency had to be mobilised from various sources.

    To succeed in this resource mobilisation exercise and in the interest of good corporate governance, institutional memory and proper agent/master-relationship between RBZ and Government as represented by the Ministry of Finance, we at RBZ asked for specific letters authorising us to mobilise forex resources for Government, with limits being placed by Government in relation to how far and how much the Ministry of Finance wanted RBZ to mobilise on its behalf. This we insisted upon in order to avoid the kind of irrational debate we are currently having as a nation.

Ministry of Finance letters to RBZ

For completeness, I list below the various letters that were written by the Ministry of Finance giving the Reserve Bank authority to borrow over the past five years (see table).

It is hoped that this factual revelation puts this matter to rest so that our combined efforts are directed towards more productive issues, rather than needless negativity.

It is also recommended that without any further delays, the Hon Minister of Finance be advised to acknowledge and take over these Government debts from RBZ books and work out amicable repayment plans with creditors.

Reconciliation of RBZ US$1,1 billion debt
Debts owed to other central banks as at 30/6/10:

    South African Reserve Bank (contracted and rolled over since 1979) ' US$10 million
    Bank Negara ' Malaysian Central Bank  (contracted June 1991-Sept 2000) ' US$49,8 million
    Reserve Bank of Malawi: Grain Importation Facility (contracted 2006/7) ' US$20,4 million
    Total amounts owed to sister central banks ' US$80,2 million

Debts owed to External Financial Institutions/ Suppliers/Corporates/Governments

    Regional and continental banks and corporates who provided roll-over facilities for grain, fertiliser and oil importations (prior to 2003 US$55,1 million) ' US$122,2 million

    Equatorial Guinea ' Fuel Importation Facility (contracted 2006/7) ' US$220,8 million

    Eximbank China ' Farm Implements ' US$ and South Korea ' Farm Implements (contracted 2006/7) √¢‚Ǩ‚Äú US$44,4 million

    Other Government authorised and contracted suppliers of grain, seed and fertilisers (contracted 2005- 7) ' US$171,2 million

    Total ' US$561,6 million

Debts owed to local financial institutions

    Financial Institutions Corporate (Private Sector) FCA Deposits (contracted 1996-2003 US$295,2 million) ' US$359,8 million

    Local Banks Statutory Reserves (2007/8) ' US$  79,9 million

    Total ' US$439,7 million

Grand total amount RBZ owes to the creditors as verified by external auditors and IMF as at June 30 2010 ' US$1 082,5 million
Some extraordinary debts/events financed by RBZ in the national interest using above extraordinary sources of funding

    March/June, 2008 Harmonised Elections for which re-imbursement is outstanding from Government. ' US$88,2 million

    Payment to IMF to prevent Zimbabwe from expulsion from the 184-member grouping with dire consequences:  RBZ is still to receive re-imbursement from Government so it can, in turn, repay its own creditors ' US$220,9 million.

    Payment to World Bank and African Development Bank in service of Government loans contracted in 1980s/90s for which it (RBZ) is yet to receive reimbursement from Government so that it (RBZ) in turn can repay its debts ' US$5,0 million

    Payment to Government of Botswana for vet, medicines and special parcel of oil received from Botswana in 2001/2 ' US$6,1 million

    Zinwa/Government cholera war (2008) ' US$6,5 million

    TelOne ING debt by court order and covering voice, data, internet and DAMA whose shutdown could have led to an economic blackout with business grinding to a halt due paralysis of telecomms in Zimbabwe save for terrestrial links to the region only ' US$13,0 million

    Eximbank ' USA: Debt paid in May 2007 under a "legal gunpoint" in the form of action and demands by USA District Court, Southern District of New York, (USA Department of Justice) for outstanding loans contracted by Ministry of Finance in 1997 and 1999.  Amount is still to be reimbursed to RBZ so that in turn it can pay its own creditors ' US$44,7 million

    Cars supplied to Government ministries for which Government is yet to pay RBZ for those vehicles being used by the ministries/ministers/senior officials/parliamentary and Senate committees ' US$42,4 million

    GMB: Seed, grain and fertiliser imports paid for in forex ' US$610,2 million
    Zesa debt arrears and power importation payments ' US$100,4 million
    Air Zimbabwe, Support ' US$206,7 million
    Extra-ordinary Government support financings ' US$ 55,9mil
    Farm Mechanisation Debtors ' US$198,0mil
    Total owed to RBZ by Government ' (US$1,4 billion and farmers US$198 million)
    Grand total ' US$1 598,0 million

Please note that all above figures have been verified and audit confirmations and documentation in support of each and every figure mentioned are available.

Single-entry bookkeeping

It will be observed from the above exposé that any discussion of RBZ debt (the creditors' side) which does not include discussion of the debtors' side is like single-entry bookkeeping in accounting . . . it is unbalanced and results in uninformed conclusions, especially with some editors that are bent on portraying the RBZ in negative light each time they come across RBZ or Gono ' as was the case with one screaming editorial headline in the NewsDay of Thursday, October 27, 2011 that ran "Gono must repay" as if the RBZ debt on the creditors side was personal.

Also, discussions to date about the RBZ debt by those in the know has ignored debate about how much Government, through the Ministry of Finance, owes RBZ completely. At best, in debates about RBZ debt, the discussion of RBZ debtors has only centred around Farm Mechanisation debtors who owe RBZ about US$198,0 million which is 12,4 percent of RBZ's debtors, while ignoring 87,6 percent of the debts owed to the bank by Government.

If Government was to repay RBZ US$1,4 billion that it owes the apex bank tomorrow, the bank would in turn be able to pay its US$1,1 billion debt to creditors and still remain with US$300 million for its capitalisation, lender of last resort operations, day-to-day needs and then focus on its core mandate!
Reclassification of RBZ debt (Creditors and Debtors)

Understandably, it has not been known by most stakeholders that the law of succession has meant that the current RBZ administration has had to shoulder responsibility for not only pre-independence carry- over debts but those contracted by the Ministry of Finance on behalf of Government and the people of Zimbabwe in the 1980s, in the 1990s and the first three years of the new century without seeking to posture or cleanse ourselves of those legitimate obligations amounting to over US$400 million or about 40 percent in total.

Also, prior to now, it was not public knowledge that of the US$1,1 billion debt so much talked about, as verified, is classified and categorised as follows:
Creditors side

    Central Bank Lines of Credit' US$80,2 million (7,4pc
    Non-resident Sovereign debt ' US$452,6 million (41,8pc)
    Non-residents institutional debt ' US$110,0 million (10,2pc)
    Domestic Debt (Banks/Deposits) ' US$439,7 million (40,6pc)
    Total ' US$1 082,5 million (100 percent)

Debtors' side
On the debtors' side, the breakdown and categorisation of what Government owes RBZ is as follows:

    Debt incurred in honour of constitutional obligations (elections) and approved by Parliament in the 2008 National Budget but paid for by RBZ. ' US $88,2 million (5,5pc)

    Debt incurred meeting Zimbabwe's loan repayment obligations of loans approved by Parliament ' US$289,7 million (18,1pc)

    Debt incurred feeding the Zimbabwean population, GMB grain, seed, fertilisers ' $610,2m (38,2pc)
    Debt incurred "powering industry and lighting the country" (Zesa) ' US$100,4 million (6,3pc)
    Debt incurred supporting Air Zimbabwe, saving lives (cholera) ' US$213,2 million (13,3pc)
    Debt in respect of Government cars, etc ' US$98,3 million (6,2pc)
    Debt in respect of mechanisation (farmers' obligations)' US$198,0 million (12,4pc)
    Total ' US$1 598,0 million (100 percent)

Some historical facts which some people have  either forgotten or conveniently ignore

Genesis of the surrender requirements

    Beginning early 2000, when the Balance of Payments (BoP) position of the country started to markedly deteriorate, foreign exchange inflows to the Government began to also decline.

    This unfavourable trend was further worsened by the explicit imposition of sanctions against Zimbabwe which led to most multilateral and bilateral lines of credit being suspended.

    Against this background, Government through the Reserve Bank was left with no choice but to rely on export earnings to raise foreign exchange revenue.

    It is key and important to realise and recall that throughout the 1980s Government used to take all forex earnings from exporters and a regime of import licences was in place, with forex allocations by a committee comprising RBZ/Ministry of Industry, Commerce/Trade and Technology (then), and the Ministry of Finance.

    This arrangement was done away with when Esap was introduced in the early 1990s until the re-introduction towards the turn of the century of same restrictions but under the name.

Export surrender requirements

    Primarily, proceeds from these surrender requirements covered the following outlays:

    Servicing of Government debts, including the lifeline facilities on fuel, grain, fertilisers, agricultural equipment and other trade facilities;

    Payment for critical Government requirements including medical drugs, embassy payments, water treatment chemicals and direct importation of strategic inputs among other essential payments; and

    To act as a source for contingent fall-back reserves for the Government;

The new economic measures of March 2009

    The new economic measures introduced by Government in March 2009 saw the sudden and abrupt abolition of any inflows of funds into the RBZ coffers by way of export surrender proportions, gold proceeds retentions as well as the use of the Zimbabwe dollar as a medium of exchange.

    This move, while intended to revive the economy and therefore most welcome, brought with it unintended consequences which are the subject of this debt debate and RBZ debt crunch.

The implications of revocation of surrender requirements.

    The direct implication of the new economic measures was that immediately after implementation, Government through the Reserve Bank failed to service all the standby facilities and creditors that had been giving support to the country at its greatest hour of financial vulnerability.

    All the affected facilities were used for:

    Grain importation;
    Fuel importation;
    Electricity importation;
    Embassy payments;
    Importation of medical drugs and hospital equipment; and

    Payments to various Government ministries, parastatals and local authorities, among other already referred to obligations.

    That is the historical aspect of this tricky situation we find ourselves in and the purpose of the narration is NOT to apportion blame to anyone.

To the contrary, I believe that a firm grasp of the history of anything equips whoever wishes to engage in its discussion with a better appreciation of the range of options available or that could be available.

    Furthermore, it is neither the intention or wish of this Governor or the RBZ board, management and staff to recommend the re-introduction of surrender requirements against exporters nor any other form of implicit taxation to solve this debt issue because the debt challenge for this country is bigger and greater than just the RBZ debt resolution framework. A holistic approach will have to be adopted sooner or later.

    May stakeholders be guided accordingly in their discussion of the topical issue of RBZ debt as well as its resolution framework.

Source - Sundaymail
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