THE government’s decision to assume the Reserve Bank of Zimbabwe (RBZ)’s external debt has been done without consulting Parliament, which is likely to weigh heavily on already burdened taxpayers, a civil society group, the Zimbabwe Coalition on Debt and Development (Zimcodd), has said.
Last week, President Emmerson Mnangagwa, through his presidential powers, announced through Statutory Instrument (SI) 108 of 2023 that the Finance minister would have the prerogative on external loans, effectively curtailing the central bank’s traditional roles.
The move comes barely two weeks after Finance Minister Mthuli Ncube announced several measures aimed at stabilising the economy.
Following the decision by Treasury to take responsibility for repaying all foreign currency- denominated loans contracted through the central bank, Treasury has with effect from this month begun funding the Zimbabwe dollar component of the 25% foreign currency surrendered by exporters, in order to eliminate the creation of additional money supply.
“This policy shift has an effect of cleaning up RBZ balance sheet to allow it to focus on its primary mandate of price, currency, and financial market stability. It also helps in reducing the Zimdollar’s liquidity growth in the economy as the central bank was partly printing money to service its external obligations.
“However, assuming RBZ debt without a comprehensive and independent debt audit risks overburdening taxpayers with odious and illegitimate debts. “Assuming RBZ public debt without parliamentary approval raises concerns on the constitutionality of the action. Parliament must monitor and oversee expenditure by all state institutions in order to ensure that all revenue is accounted for, all expenditure has been properly incurred and any limits and conditions on appropriations have been observed,” said Zimcodd in a report.
The central bank has struggled with debt. Official statistics show the RBZ external debt at US$3.37 billion — about 24% of total external public and publicly guaranteed (PPG) debt which stands at US$14.04 billion.
Overall, Zimbabwe’s total PPG debt is recorded at US$17.6 billion as of end of September 2022. The RBZ has since 2000 been carrying out quasi-fiscal activities across sectors of the economy, such as health, infrastructure, education and agriculture, in mostly unsuccessful attempts to promote economic growth.
For instance, in 2008, the RBZ funded the farm mechanisation programme, and gave loans at concessionary rates to resettled farmers, companies and statutory bodies outside the national budget, which were never audited and were seldom repaid.
The programme, among others, was not authorised by the Reserve Bank of Zimbabwe Act or any other law, and sank the RBZ into debt. This saw Parliament pass the Reserve Bank of Zimbabwe (Debt Assumption) Act of 2015 through which the government would place the debt burden on the shoulders of taxpayers.
“The borrowing by RBZ in the past has been marred in controversy as debts such as the US$200 million Agriculture Farm Mechanisation have only benefited politically connected individuals. Some debts have been opaquely contracted and after being compelled by the courts, Treasury has offered dubious uses of funds borrowed by the RBZ such as importation of ‘strategic’ commodities. “The assumption of RBZ external debt means that all existing payment obligations (loan interest and principal amount) are now being fulfilled by the taxpayers through the Treasury. This policy shift has an effect of cleaning up RBZ balance sheet to allow it to focus on its primary mandate of price, currency, and financial market stability.
“The Treasury will now be forced to prescribe and adhere to annual borrowing limits thus help promoting fiscal discipline. However, assuming RBZ debt without a comprehensive and independent debt audit risks overburdening taxpayers with odious and illegitimate debts,” Zimcodd said.
Treasury has been approving loans without Parliament’s approval. In April, the High Court ordered Treasury to gazette within 12 months a Bill amending the Public Debt Management Act [Chapter22;21], after it emerged Finance minister Mthuli Ncube has been approving loans without Parliament’s authorisation, in violation of the constitutional tenet of accountability.
The government issued guarantees for domestic creditors amounting to ZW$20.2 billion and US$1.4 billion without Parliament’s approval in 2021 alone.
A huge debt overhang has also seen the country fail to get external lines of credit from institutions like the International Monetary Fund (IMF) and the World Bank.
Zimbabwe owes international creditors US$14.04 billion, with domestic debt pegged at US$3.4 billion. Debt owed to bilateral creditors is estimated at US$5.75 billion, while multilateral creditors are owed an estimated US$2.5 billion.