THE setting up of the Zimbabwe Asset Management Company (Zamco) to absorb non-performing loans (NPLs) and the issuance of Treasury Bills (TBs) by the Reserve Bank of Zimbabwe (RBZ) without parliamentary approval is unlawful, former finance minister Tendai Biti has said.
By Hazel Ndebele
In 2014, the central bank established Zamco to avert a catastrophic banking crisis triggered by soaring NPLs which reached double-digit figures against a best practice target of 5%. At Zamco’s inception, bad loans had reached US$816 million.
Speaking at the Southern African Political Economic Series policy discussion last week titled Zimbabwe’s Economy: How and When to Re-introduce a Viable Zimbabwe Currency, Biti said according to the country’s constitution adopted in 2013, the setting up of Zamco and issuance of TBs was supposed to be passed by the National Assembly.
“The issuance of the toxic TBs which are not getting approved in Parliament is illegal,” Biti said. “Section 300 of the constitution states that any borrowing that the government incurs must be approved by parliament and yet there is adoption of NPLs by Zamco which has acquired US$836 million when that tool has not been approved by parliament.”
“So I would like to think that some clever lawyer out there is thinking of that and it is only a question of time when they will go to court and question if these government tools have been approved by parliament and if it is lawful.”
Zamco buys out loans from banks using TBs which are short-term negotiable instruments. The bills are issued by the government through the central bank to finance government short-term requirements.
Biti said the TBs and various monetary instruments from the Ministry of Finance are increasing the stock of domestic debt.
Zimbabwe is currently grappling with a debt stock of US$11,2 billion, which includes domestic and external obligations, that has affected the country’s credit rating. The country’s public debt stock rose from US$9,4 billion in 2015 to US$11,4 billion last year, according to the World Bank.
Biti said the central bank has failed in its mandate to foster monetary policy stability. He also blamed the RBZ for increasing the domestic debt by having various facilities such as the cross-border facility, the youth empowerment fund facility, gold facility, horticulture facility and tourism support facility at a time it is broke.
Presenting the Annual Budget Review for 2016, Finance minister Patrick Chinamasa said Treasury had issued debt instruments almost half the size of the national budget to finance its projects.
Chinamasa said while financing through borrowing from domestic market was largely achieved using instruments such as TBs and bonds, the issuance of TBs during 2016 was not entirely to provide for the shortfall between budget expenditure requirements and tax revenue collections.
He said a combination of “inescapable” expenditure requirements and revenue underperformance of US$347,8 million left public finances with a borrowing requirement of US$1,4 billion.
“Of the US$2,1 billion worth of TBs and bonds issued in 2016, only US$356,3 million was to finance the budget deficit, whilst US$1,7 billion was to honour outstanding legacy debt,” said Chinamasa.
TBs worth US$329 million, according to Chinamasa, were issued towards the Reserve Bank of Zimbabwe legacy debt. He added that the assumption of the RBZ debt includes US$130 million due to external creditors.
Government issued TBs worth US$128 million to finance mainly loss-making state-owned enterprises and parastatals. Treasury also issued TBs to the tune of US$219 to recapitalise a special vehicle set up by the Reserve Bank of Zimbabwe to absorb non-performing loans.
Despite this over-reliance on TBs, international financial institutions such as the World Bank and local experts have cautioned Treasury on the over-issuance of TBs, saying this could crowd out private sector lending at a time companies are badly in need of fresh capital to retool and compete with regional players.