Over many years, the Reserve Bank of Zimbabwe (RBZ) accumulated a debt, exceeding US$1,1 billion, mainly as a consequence of the pre-Government of National Unity (GNU)regime pressurising it to undertake numerous activities generally beyond the normal functions of a central bank.
Column by Eric Bloch
The central bank should be the lender of last resort and be engaged in monetary policy, oversight and supervision of commercial banks and other financial institutions, and management and control of national monetary reserves.
However, prior to 2009, government repeatedly imposed other innumerable costly obligations on the RBZ, resulting in the vast accumulation of debt, that the bank was unable to service and fund those obligations.
Included in the mammoth indebtedness of RBZ is sovereign debt of US$452,6 million, US$439 million of domestic debt, non-resident institutional debt of US$110 million, and central bank lines of credit amounting to US$80,2 million.
A significant portion of the domestic debt is owed to the private sector, to a considerable extent in consequence of RBZ having “expropriated” foreign currency receipts of exporters and the private sector during the pre-multicurrency era without the lawful possessors of such funds receiving compensation for the funds they involuntarily had to “surrender” to RBZ.
The RBZ has recently been seeking to address the diminution of its mountainous debts by disposing of diverse business interests and other assets non-compatible with central bank functions.
It has also energetically engaged in restructuring its operations to accord with its central bank functions, resulting in retrenchment of numerous personnel, and thereby significantly reducing its operational costs. However, none of this has yet enabled RBZ to reduce its indebtedness to so many private sector enterprises and other former legitimate possessors of foreign currency.
One of the major consequences of the expropriation of export and other private sector currency receipts was to compound the immense illiquidity of business already severely eroded by the massive hyperinflation of 2008.
Many manufacturers, mining houses, tourism ventures and others were emasculated by RBZ’s failure to release their legitimate funding receipts, and that contributed to the enormous economic decline prior to the 2009 GNU and has also been the greatest constraint on the country’s economic upturn.
The GNU told RBZ to stick to normal central bank functions and leave all other responsibility to appropriate arms of government. The Minister of Finance Tendai Biti has stated that government is now poised to take over the entire RBZ’s US$1,1 billion debt.
In order to do so, government intends parliament to promulgate the RBZ Debt Relief Bill in September or October, 2013, (when the post-elections new parliament comes into being).
This intent is emphasised in a Letter of Intent to the International Monetary Fund (IMF) for the implementation of an IMF Staff Monitored Programme which is to be key to the drive for a stable and growing economy.
It is government’s intention that the RBZ Debt Relief Bill will prescribe the establishment of a governmental Special Purpose Vehicle (SPV) to house RBZ’s non-core assets and liabilities.
However, as constructive as these governmental intents may be, the state of near bankruptcy of the fiscus is such that the prospects of the SPV being able to effect rapid total settlement of the debts (and thereby restoring operational viability for many private sector enterprises, and achieving consequential meaningful economic growth) are remote in the extreme.
That can only happen if appropriate, dynamic and constructive measures are concurrently pursued by government and the SPV, with guidance and authoritative advice by the IMF Staff Monitored Programme.
One measure, which could be economically beneficial and be pursued without delay, would be for the state to issue interest-bearing, tradable Treasury Bonds, with Prescribed Asset status, in settlement of the RBZ indebtedness (which settlement should also include equitable interest for the period since when the private enterprises’ funds were taken into RBZ possession).
If such Bonds were to be issued, the recipients could realise their much-needed financial resources by trading the bonds with insurance companies, pension funds, and other institutions that are subject to being possessed of decreed value of Prescribed Assets.
In addition, recipients of the Treasury Bonds should be enabled to use them to effect any payments due by such Bond-holders to government. Holders of those Treasury Bonds should also be enabled to use them to effect any payments as are, or will be, due by such Bond-holders to Government.
The bonds should be valid for usage to pay Income Tax, Capital Gains Tax, Withholding Taxes, Customs and Excise Duties, Value Added Tax and P.A.Y.E, and other debts the private sector may have with the Fiscus.
Treasury may be fearful that according bonds acceptable status for settlement of liabilities to the state would be markedly prejudicial to its already grossly inadequate cash inflows.
However, such fears should be allayed and countered by recognition that the attendant restoration of operational viability to the beleaguered private businesses will markedly enhance the economy, and such enhancement would result (over and above many other national benefits) in significantly greater generation of direct and indirect taxation and other revenue inflows to the Fiscus.
Moreover, the long overdue fulfillment by government of its undertakings to assume the RBZ indebtedness, and to effect settlement, will be a marked contribution to a restoration of business confidence and will create some private sector confidence in government credibility.
This will also accord potential investors a degree of enhanced perceptions of investment security.
All of those side-benefits would contribute in part to the extensive economic recovery greatly needed and craved for by all Zimbabweans.