ZIMBABWE’s industrial and financial sector is estimated to have lost more than US$20 billion following the Supreme Court ruling allowing for the settling of United States dollar debts, acquired before February 22, 2019, in Zimbabwean dollars at a 1:1 rate.
The ruling, made last month, was delivered in favour of Zambezi Gas Zimbabwe (Pvt) Ltd, in a matter involving NR Barber (Pvt) Ltd, which was owed over US$3 885 000 by the gas company before the effective date of Statutory Instrument (SI) 33/2019, being February 22, 2019. Industry experts said the ruling was not in line with best financial and economic practices, but there were winners and losers as companies and institutions were owed, but also had debts.
The big losers were the major industry players and service providers, real estate companies, the banking sector, mining, as well as the country’s tax collector, the Zimbabwe Revenue Authority (Zimra).
“It would be difficult to conduct a survey on how much was exactly lost and not many companies would be willing to open their books for these checks and balances, but maybe in future we should manage these transactions properly,” an industry expert told the Zimbabwe Independent.
Experts, however, said while it is difficult to measure individual company losses, the monetary policy and financial statements give an indication of how much was lost in the banking sector, through the country’s domestic debt, Treasury Bills (TBs), as well as at Zimra.
For the banking sector, there were a total of US$4,22 billion worth of loans and advances as at December 2018, which has not been translated to ZW$4,22 billion. In other words, the figure has whittled down to just US$230,7 million using yesterday’s interbank rate of ZW18,1 to the US dollar.
“The banking sector remained generally stable as reflected by adequate capitalisation and improved earnings performance for the period ended December 31, 2018. However, asset quality deteriorated as reflected by increase in the average non-performing loans to total loans ratio during the period under review,” the February 2019 Reserve Bank of Zimbabwe monetary statement reads.
“Total banking sector loans and advances increased by 11,05%, from US$3,8 billion as at December 31, 2017 to US$4,22 billion as at December 31, 2018. Lending to the productive sector increased over the year, from 73,64% to 76,01% of total loans as at December 31, 2018. The increase is largely attributable to lending to the agricultural sector, which increased from 14,7% to 16,39% and other segments, including state-owned enterprises — from 12,1% to 20,1 %.”
The sector that received most of the loans was agriculture at 16,34%, followed by commercial 15,33%; mortgage 11,12%; distribution 10,52%; construction 9,86%; manufacturing 7,68%; mining 3,52%; financial 1,78%; transport 1,06% and communication at 0,38%.
Credit-only micro-finance Institutions had total loans of US$272,13 million, which can now be paid in local currency, translating it to US$15 million using yesterday’s rate.
“Loans to the productive sector of US$194,64 million as at September 30, 2018, accounted for 71,52% of the total credit-only microfinance sub-sector loans of US$272,13 million,” the monetary policy statement revealed.
Zimra is set to also lose big, as it reported in its 2018 annual report that it was owed US$5,03 billion in unpaid taxes. This means Zimra is now owed ZW$5,03 billion, now equivalent to US$277 million.
Among those who owe the tax collector are parastatals, councils, the private sector and importers.The ruling also means that government’s domestic debt of US$9,2 billion as at December 31, 2018, has now been translated to ZW$9,2 billion or US$508,2 million, easing government’s woes, while prejudicing creditors.
Also as at December 31, 2018, Zimbabwe Asset Management Corporation (Zamco) had taken up US$1,13 billion in bad debts, which it will pay in TBs, converted to the local unit.
Finance minister Mthuli Ncube initially pledged to stem Treasury’s reliance on the debt instruments to finance government’s budget deficit after he made startling revelations that between 2016 and August 2018, government had issued US$5,5 billion worth of TBs.
Ncube also said TB maturities of around US$2 billion in 2019 were not sustainable, suggesting that he would seek to roll over the paper.
“High fiscal deficits became entrenched largely due to expenditures committed outside the budget framework through Treasury Bill issuances,” Ncube said in his 2019 budget statement.
“In order to manage the maturities, Treasury is exploring options for restructuring this commitment, in consultations with market players.”
Over the years, banks piled billions of dollars onto their books in government paper to meet regulations that compel them to have around 30% of their assets in liquid assets in the face of a credit crisis in the economy that saw the central bank creating a special purpose vehicle to mop up close to a billion US dollars in non-performing loans, Zimbabwe Asset Management Corporation (Zamco).
Ncube said he will now stop Zamco operations.As at June 30, a total US$4 billion TBs were taken by the country’s 17 financial institutions.
The determination of the Supreme Court came about after Zambezi Gas Zimbabwe had its property attached following a judgment in favour of NR Barber after the latter had declined to accept the settlement of the debt in local currency.
“The payment of RTGS$4 136 806,45 made by the appellant (Zambezi Gas Zimbabwe) as settlement of the judgment debt was a full and final settlement of the judgment debt in terms of Section 4(1)(d) of SI 33/19,” Chief Justice Luke Malaba said in his judgment.