Broke govt wary of further borrowing

THE debt-ridden Zimbabwean government is shying away from acquiring new liabilities and worsening its debt albatross which is chasing away capital and choking the economy, Finance minister Patrick Chinamasa has said.

By Taurai Mangudhla

Finance Minister Patrick Chinamasa

Finance Minister Patrick Chinamasa

The Treasury chief urged new investors to take up equity in companies instead of availing loans and government guarantees that add to the country’s ballooning public debt, which stood at US$11,2 billion as at October 31.

“For me, I am encouraging equity, yeah I am encouraging equity because at least they are sharing with us the risk … whereas if it is totally a loan it means it’s a country debt which means it increases the overall liabilities,” Chinamasa told journalists on a media tour of food processing firm Associated Foods Zimbabwe Ltd (AFZ)’s Vumba plant.

“Where I was yesterday, I was talking about US$10 billion. If you add more it creates more headaches for me,” Chinamasa added.

He said government was committed to creating an enabling environment for business to grow while expanding the tax base.

“I have also indicated in my budget that it is companies like this which should approach Treasury to say what fiscal incentives they want in order to grow, what environment they want to grow the economy. By growing bigger we also grow because you also pay more taxes and so forth,” Chinamasa said.

Last year, government introduced Statutory Instrument 64 which prohibits importation of certain goods without prior clearance. The instrument, Chinamasa said, was a temporary measure meant to protect special areas in industry and will be lifted once government feels players are able to compete sustainably.

Chinamasa’s comments come amid concerns a financial crisis is looming after government failed to honour Treasury Bills (TBs) issued by the Reserve Bank of Zimbabwe on maturity worth US$1,5 billion to finance the government’s worsening deficit position and paying the state’s creditors.

The failure to honour payments has seen the TBs being rolled over to allow government more time to raise funding.

Investigations show that the central bank has also been issuing paper secretly to government creditors.

Traditionally, central banks run open market operations to buy and sell government securities in the open market in order to expand or contract the amount of money in the economy, among other monetary objectives.

In his mid-year fiscal policy review statement, Chinamasa said a US$623 million budget deficit for the six months to June would be financed through the issuance of TBs by the central bank.

The budget deficit is expected to be over US$1 billion by the end of the year.

The disclosures heightened fears the financially struggling government could have triggered an inevitable crisis as liquidity conditions worsen in the market as banks mop up the paper.

Smarting from exposure to a credit crisis characterised by shocking levels of non-performing loans, which rose to a high of US$700 million, banks have been taking positions on the paper and see the instruments as an opportunity to safeguard depositors’ funds in tough economic times.

AFZ recently acquired a modern peanut butter production line which was part financed by a US$2 million investment fund from the Norwegian Investment Fund for Developing Countries (Norfund). Norfund’s investment can be converted to equity. In addition to part-financing the merger and acquisition of the new state-of-the-art peanut butter production line, Norfund’s investment will contribute towards capital expenditure and working capital.

AFZ director and majority shareholder Simba Nyabadza said the company has increased production volumes by 80% since receiving the new investment with plans to grow even further backed by new export opportunities in the region and a growing local market.

Norfund food and agribusiness investment manager Chishamiso Mawoyo said the company has investments to the tune of US$50 million in Zimbabwe in NMB Bank, AFZ and Lake Harvest.

He said Norfund has about US$2 billion to invest in developing countries in the areas of food and agro-processing, financial services and renewable energy.

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