RBZ has Paid off Zim’s debts –– Gono

THE Reserve Bank of Zimbabwe has paid loans which had been advanced to government by different multi-lateral institutions, banks and countries amounting to US$375 million.


According to Reserve Bank Governor Gideon Gono, the bank had to repay loans amounting to US$375,3 million backdating to 2003, the year he was appointed governor.
“The gravity of these matters was demonstrated by undue pressure applied on government by the Eximbank of America demanding re-payments within seven days in May 2007,” Gono said.
Gono said the Reserve bank had to pay most of the debt some of which was borrowed in the early 1980s as government did not have the capacity to do so.
“Whereas the bulk of the country’s external obligation were contracted in the early 1980s and 1990s, the Reserve Bank has had to honour some of the guarantees on behalf of government,” Gono said.
The government creditors include the International Monetary Fund, Eximbank of America, World Bank and African Development Bank. Government also owed money to countries such as Botswana, China, Malaysia and Equatorial Guinea.
Government’s failure to honour debts and high inflation has resulted in a low savings culture in the country.
Savings and investment which are critical for Gross Domestic Product (GDP) growth have been progressively falling with marked declines from an average of 15% during 1995 – 2000 to around 4% of GDP last year.  
Zimbabwe has been lagging behind the rest of other Southern African Development Community (Sadc) countries on savings.
The fast growing economies of East Asia have had savings and investment ratios of at least 25% of GDP and often more than 30%.
In Zimbabwe’s case, investment levels are as low as 4% of GDP which means that there has been virtually no new investment projects, and grossly inadequate levels of capital maintenance and replacement investment in recent years.
“The country now faces the daunting task of having to restore the pre-existing capital stock while at the same time wanting to move forward with investment into new areas. In the infrastructure sectors, the deterioration due to inadequate maintenance is very obvious; having to rehabilitate existing capital items is going to be much more expensive than regular maintenance would have been,” said Finance Minister Tendai Biti in his Mid-Term Fiscal policy.
“The legacy of the recent economic crisis in terms of destruction of capital, loss of skills and the creation of highly unequal society has not just pushed Zimbabwe down to a much lower starting point, but has also reduced the economy’s growth potential,” Biti said.
Government is technically insolvent and has been failing to honour most of its foreign debt which is currently said to be US$4 billion.
Gono said government’s borrowing should be “reduced to promote economic growth” as all major sectors of the economy had shown a sign of improving since the country was dollarised.
Analysts also said government ministries also need to “control” their debts if the country’s economy was to be revived at a faster pace.
According to the Ministry of Finance, government ministries have accumulated arrears amounting to US$21,7 million, especially for utility bills such as electricity, water, telephones and vehicle hire as at June 30.
Government domestic debt which stood at $59 sextillion as at February 26 fell off after government redeemed all Treasury Bills (TB) subsequent to adopting multiple -currencying.
Under the hyperinflation environment in 2008, revenues were much higher than expenditures, allowing government to redeem the entire domestic debt by February 2009. Analysts said it would be interesting to know whether the repayment of that 59 sextillion debt was due to a successful sustainable debt restructuring programme by government or it’s symbolic of how government had benefited from inflation, whilst the holders of the TB bore the brunt of fiscal recklessness and irresponsibility.
Following the dollarisation of the economy, government is now relying more on foreign aid and lines of credit from international financial institutions.
Economist Brains Muchemwa told businessdigest on Wednesday, that at one time domestic debt stood at more than 20% of GDP and all of a sudden a broke government expunges it at the symbolic value of US$1.
“That is an economic joke of the century. It clearly shows government being the biggest beneficiary of the inflation it had manufactured, and how banks, depositors and pension funds have lost money to inflation. It says volumes about how this present generation passed poverty and hardships to the next generation,” said Muchemwa.
Due to high inflation, the financial sector’s balance sheets were reduced to less than 25% of their 2004 value, reflecting an erosion of the real value of financial assets and liabilities in Zimbabwe dollars.
“In order to remain afloat, most banks have had to downsize their operations by closing branches, especially those in the outlying service centres, leaving about 65% of the population unbanked, most
particularly in the rural areas,” Biti said.

 

BY PAL NYAKAZEYA