The RBZ toxic debt and consequences

I WROTE on the issue of the Reserve Bank of Zimbabwe (RBZ) US$1,3 billion debt recently, and I am going to take the liberty to repeat my assertions here, lest some of you missed my opinions on the subject matter.

Vince Musewe

In addition, we also need to understand the negative consequences of a weak and disempowered central bank. If we then add the issue of the patronage and corruption in Zimbabwe since 1980, we shall find that this has resulted in the race to the bottom in governance and ethics not only in the banking sector but in the economy as a whole.

The RBZ is bankrupt and if it were a normal private business, it would have been liquidated because its liabilities far exceed its assets.

Interestingly enough, this is the same problem that Zimbabwe faces as a whole. As a country, we have non-performing assets in the case of land, idle human capital and the vast mineral resources that we cannot access because we do not have the capital. We also have a humungous foreign debt that we cannot service because our assets are not generating enough income. If we were a company, we would have been liquidated and the chief executive officer (CEO) fired.

The same applies to the RBZ. Now any CEO who presides over the bankrupting of a company normally gets fired immediately by the shareholders because he would have lost value through his or her inability to manage the company and unlock the value of its assets to generate profits.

The astounding fact is that this government has no intention of condemning the CEO of the RBZ who failed to manage it and effectively bankrupted it. It has actually praised his role in apparently saving this country.

In addition, it is also trying to be very clever by reframing the problem created by its former CEO and sanitise the debts created by shipping the debt off the RBZ balance sheet and making it our problem.

By sanitising the RBZ toxic debt, which is actually non-recoverable political patronage debt, this government hopes it will be able to put the RBZ back on its feet as if nothing happened. That is a travesty.

Now if the US$1,3 billion debt incurred by the RBZ under the former governor Gideon Gono had been used to our benefit, for example to ensure food security or even to build schools and hospitals, we could have entertained the thought of paying it back.

In fact, that is very easy to determine. All we need is a list of who took the money and what they used it for to determine its ultimate destination. That way we can all make an informed decision on who should pay it back.

But your government doesn’t want to do that because it will expose the CEO and those who benefitted. I suspect that on that list we shall find a common thread called Zanu PF. Therein lies their dilemma.

So ordinary poor Zimbabweans, a majority of which are surviving under US$1 a day, must now take the responsibility of paying off this debt in the future through tax. This is a debt that was incurred to save a Zanu PF predatory cabal and remember that it is this very same cabal that invaded Chiadzwa and continues to plunder the resources of this country at the expense of everyone. Where their money is going I don’t know, but I digress.

My argument here is that we cannot accept this scenario nor should any Member of Parliament who is worth his or her salt, regardless which political party they belong to, accept this. But as we know, our MPs hardly vote with their conscience on critical national issues.

So my contention here is that this ought to be a constitutional matter because any passing of the RBZ Debt Assumption Bill by a Zanu PF dominated parliament will actually be a monumental fraud against ordinary Zimbabweans.

So there it is. I encourage my judicious readers to make up their own minds on this matter. Now let us go further and look at the role of the Reserve Bank. Its role by law is to manufacture and implement monetary policy, to regulate the financial services industry, to act as lender of last resort and of course to be banker to government.

For the benefit of my judicious readers who may not be economists, inflation or the general rate of increase of prices can be controlled by using cost of credit or the quantum money supply in circulation.

You increase interest rates to reduce access to credit and slow down the economy and reduce inflationary pressures and vice versa.
You can also print money to have an impact on the money supply. The more your print without a commensurate increase in the productive capacity of the country, the higher prices will be and vice versa.

Zimbabweans know this very well given the 2008 traumatic experience that the country went through. We printed Zimbabwe dollars and forgot that we needed to invest in the productive capacity of the country for that money to buy goods on the shelves of our supermarkets, so we ended up with loads of cash and no products to buy and prices rocketed.

The RBZ must also regulate banks through monitoring them and regularly evaluating governance and ethics issues so that banks do not over-expose themselves to bad credit. If they do that and fail to recover loans given out there they will have to close. The RBZ has since taken over these Non-Performing Loans (NPLs) and I wonder who will pay for them in the end?

To avoid closure or liquidity problems, sometime the banks can go to the RBZ and borrow to keep afloat. This assumes that the Reserve Bank actually has the money to advance the banks.

Remember banks can also be unscrupulous and take big risks to make money and so the RBZ must continually make sure that depositor funds are not abused because this will create a serious confidence issue in the country as a whole. The RBZ must also make sure there is fair competition in the sector and the consumer is not prejudiced.

You must also remember that banks are fed by deposits from you and me and if we lose confidence in them, we can starve them of our money. As a result, they will be unable to lend money out simply because they won’t have any. The RBZ wants to ensure that we are happy and have confidence in our banks and continue to feed them with our deposits and this in turn oils the economy for everyone.
Now, you will note that there are some functions here that our RBZ can no longer perform because it cannot print US dollars nor can it be a lender of last resort if it is bankrupt itself.
So over the years we have had a weakening financial service industry led by an RBZ that failed to manage and implement its statutory mandate. It acted outside its mandate in the pretext of saving Zimbabwe and this has created huge problems for us to this date.

The consequences we suffer now did not emerge from thin air, but are as a result of the erosion of governance and ethics which started at the RBZ many years ago and permeated the whole financial services sector.

Unfortunately, in my opinion, the new RBZ CEO was handed a grenade and someone ran away with the pin. That is the truth.

These articles are coordinated by Lovemore Kadenge, President of the Zimbabwe Economics Society (ZES). Email kadenge.zes@gmail.com; cell +263 772 382 852 is an author, economist.