GOVERNMENT has undertaken to guarantee public and private financial institutions including the Infrastructural Development Bank of Zimbabwe (IDBZ) for debts accrued through the floatation of a series of bonds in 2020, businessdigest can report.
An Extraordinary Government Gazette issued last week said the guarantees to firms including the agro-lender Agribank, FBC Bank, CBZ Agro-yields Private Limited and Silo Food Industries totalled about ZW$750 million (US$9 million).
It indicated that Finance minister Mthuli Ncube’s guarantee to IDBZ will bind the Government of Zimbabwe as surety for repaying ZW$300 million (about US$3,6 million) in bonds floated in 2020.
A guarantee ties the guarantor to servicing a debt in the event that the issuer fails to pay the obligation.
The IDBZ guarantee shall remain valid and in force until June 30, 2024, the Government Gazette noted.a
The statement said the government had also guaranteed Agribank and the Zimbabwe Stock Exchange-listed FBC Bank a combined ZW$100 million (about US$1,2 million) subscribed through Agro bills issued by the two financial institutions last year.
The guarantee was valid until December, 31, 2020.
It said Silo Industries’ ZW$350 million (about US$4,2 million) worth of Silo Bills issued last year had also been guaranteed by the State while the government had also guaranteed up to 50% of debts owed to CBZ Agro-Yield last year.
The CBZ Agro-Yield guarantee was valid until December 31, 2020.
According to the Annual Public Debt Bulletin 2019 Financial Year government has also been forced to borrow and on-lend to the State-Owned Enterprises in order to keep vital projects running.
But the paper raised concerns that this strategy exposed the government to the risk of accumulating more debt if the mostly insolvent State firms default on their repayments.
The International Monetary Fund says Zimbabwe is already in debt distress.
As at December 31, 2019 domestic debt stood at ZW$8,88 billion (about US$110 million), according to the Debt Bulletin.
This was about 5% of the country’s gross domestic product.
Government acknowledges that it had to intervene on behalf of parastatals and agrees that there are risks to public finances associated with pumping funding into failing SOEs.
“Due to the limited sources of external finance for public entities, lenders have a preference to lend directly to the government, instead of public entities. The on-lend facilities to public entities from 2017 to 2019 amounted to US$266,5 million.
“Domestic guarantees amounting to US$18,3 million and ZWL$157,8 million (about US$2 million) were issued in the 2019 financial year. Most of the guarantees were issued to finance inputs for the 2019/20 agricultural season.
“The public entities have been honouring their financial obligations with their respective banks, hence none of the guarantees issued were called up,” the 41- page paper said.
“It stated that guarantees were contingent liabilities which could contribute to the accumulation of public debt in the event of default by the primary borrowers.
“To this end, the government has formulated a framework for evaluating, monitoring and managing guaranteed and on-lent loans.
The framework outlines the policy, legal, institutional and operational structure within which guaranteed and on-lent loans will be contracted, evaluated, monitored and managed,” the Bulletin added.