‘RBZ debts belong to Govt’
THE Reserve Bank of Zimbabwe has revealed that it borrowed about US$1,5 billion from external financiers in 2019 to fund critical imports such as petroleum products, electricity, grain, crude cooking oil, medicals, fertiliser, agro chemicals and other raw materials for use by industry.
The central bank expects the Government to take over these debts as they were borrowed on behalf of the Treasury.
As part of its 2019 Annual Report released on Friday last week, the central bank revealed that it acquires foreign liabilities on behalf of the Government and the latter will have to assume them.
The bank borrows on behalf of the Government as required by Section 7(n) of the RBZ Act (Chapter22:15).
These borrowings assist the State to prop up the economy.
“Section 7(n) of the RBZ Act (Chapter 22:15) mandates the Bank to borrow foreign currency on behalf of the State and not on its own behalf,” reads part of the RBZ’s 2019 Annual Report.
The apex bank explained that whenever it acquires external debt, it seeks Government consent or approval as part of the process in sourcing these lines of credit.
“Government through the Ministry of Finance and Economic Development issues a letter of support yearly, when required, to buttress its commitment to continued support of the central bank operations,” reads the report.
The debts incurred by the central bank come at a time Treasury recently published its external debt obligations which hardly increased between 2018 and 2019. As at December 31, 2020 Public and Publicly Guaranteed (PPG) debt amounted to US$8,09 billion, a 2 percent increase from US$7,94 billion in 2018.
Zimbabwe which is under United States of America’s sanctions and in debt arrears of approximately US$6 billion cannot borrow externally to fund its projects.
The debt overhang saw the country miss out on bail outs and debt forgiveness extended to other nations. This was blamed on its debt arrears position. Some put the blame on sanctions.
However, the central bank has been able to borrow on behalf of the State. During the year 2019, the Government through the central bank, sought and accessed offshore facilities for the country to support the balance of payment requirements of the economy as well as to liquefy the interbank foreign exchange market.
To this end, the bank accessed in excess of US$1,5 billion from new and existing revolving offshore facilities from Afreximbank (including Letters of Credit facilities), Gemcorp and Fuel Suppliers, reads the part of the RBZ’s 2019 Annual Report.
These offshore facilities enabled the Government to provide critical foreign exchange support to the market for the importation of critical supplies.
However, the central bank did not disclose how much of this debt had been paid back or was being
religiously serviced.
Instead it said at the time of signing of the RBZ’s 2019 Annual Report, the Government was reportedly in the process of consolidating and taking over foreign loans and liabilities in the Bank’s books.
The central bank said this takeover will
relieve the Bank of the interest expense burden and exchange losses “which are significant expenses in the Bank’s books”.
The central bank said it had also suffered foreign exchange losses in 2019 and expects the Government to assume responsibility.
The Bank’s exchange losses/gains are treated as either assets or liabilities in the Bank’s books with realised losses or gains treated as either receivable from or payable to Government respectively.
In addition to the above obligations, the RBZ revealed that the legacy debts it assumed from the private sector will also be taken over by the Government which had already committed to orderly settlement of blocked funds.
The blocked or legacy funds accumulated when the country could not remit due to lack of foreign currency for periods before the introduction of exchange rate on February 22 2019.
At the date of signing of these financial statements (RBZ’s 2019 Annual Report) the Bank had registered Legacy Debts amounting to US$2,4 billion.
The RBZ described the blocked funds as an “economic cost that the Government is bearing for change of currency from multi-currency to ZW$, mono currency.
In total, the central bank indicated it had closed 2019 with foreign liabilities valued at US$3,648 billion and foreign assets valued at US$282,184 million.