TREASURY and the Reserve Bank of Zimbabwe (RBZ) have agreed on a draft bill that will enable government to take over the central bank's US$1,1 billion debt.
The takeover of the debt is the last leg of reforms at RBZ that began in 2009, when the central bank was ordered to stop engaging in quasi-fiscal activities blamed for quickening Zimbabwe's hyperinflation.
Hyperinflation was halted by the use of multi-currencies four years ago.
Finance minister Tendai Biti told Standardbusiness last week that he would soon take the draft Debt Assumption Bill to Cabinet.
"The bill creates a Special Purpose Vehicle, where the RBZ debt will be housed," Biti said.
RBZ owes US$80,2 million in central bank lines of credit, has a non-resident sovereign debt of US$452,6 million, non-resident institutional debt (US$110 million) and domestic debt (bank/deposits) of US$439 million.
The central bank contends that it is also owed US$1,5 billion by government, when it engaged in quasi-fiscal activities to finance critical needs such as funding elections, sustaining parastatals and financing the farm mechanisation exercise, among others.
The assumption of the RBZ debt is a recommendation of the International Monetary Fund (IMF), which argued that the bank's balance sheet needed to be freed of the debt.
In an Article IV consultation report last year, IMF said the debt was constraining the central bank's ability to undertake liquidity provision and distracts it from focusing on its core functions.
"Proposed modifications to the RBZ debt relief bill will focus on transferring the liabilities from RBZ's balance sheet to a fund managed by the finance ministry," IMF said.
"While this is a less balanced approach than the comprehensive balance sheet bifurcation [splitting] recommended by Fund TA (Technical Assistance) missions, it remains consistent with the objective of restructuring the RBZ balance sheet."
The central bank has also proposed to dispose of its non-core assets to help clear some of its debts. However, the process has moved at a snail's pace, two years after the RBZ invited bids for the noncore assets.
In 2010, government had to invoke the Presidential Powers (Temporary Measures) Act, to protect the RBZ's assets from being attached by various creditors after obtaining writs of executions.
The creditors included those that supplied implements for the farm mechanisation programme.