Zimbabwe: Unsettled RBZ Debts Spark Alarm

There is growing concern that delays by the Reserve Bank of Zimbabwe (RBZ) to conclude the issue of legacy debts may worsen the country's foreign currency scarcity, businessdigest has learnt.

Reserve Bank governor John Mangudya, who last year announced that the apex bank would assume foreign legacy debts at an exchange rate of 1:1, last week in his Monetary Policy Statement said a total of 350 applications valued at US$457 million were being processed for finalisation by February 29, 2020.

This was after the RBZ exchange control unit processed and validated blocked funds amounting to US$1,2 billion from 730 applications out of 1 080 requests.

Of those processed, 299 transactions with a value of US$861 million were rejected for various reasons, ranging from double-dipping to lack of supporting documentation.

The country is not only seized with an obligation to facilitate the settlement of foreign currency debt, which entails the cash flows generated in Zimbabwe by foreign entities that could not be repatriated to offshore suppliers due to foreign exchange shortages. Zimbabwe also needs to repay public and publicly guaranteed external debt to the tune of US$8,2 billion.

Zimbabwe Coalition for Debt and Development (Zimcodd) in its analysis of monetary policy said the foreign currency shortages are not a short-term problem, especially at a time when the country is experiencing a decline in exports.

"The balance of 350 transactions with a value of US$457 million are being processed for finalisation by February 29, 2020. This is imposing unnecessary pressure on foreign currency in the country considering that the validated blocked funds exclude the legacy foreign exchange obligations of US$361 million under the RBZ Debt Assumption Act. Therefore, foreign currency shortages are not a short-term problem especially at a time when the country is experiencing a decline in exports," Zimcodd said.

"In January 2020, the Ministry of Finance and Economic Development announced that the Zimbabwe-China Currency Swap Deal is meant to address the accumulating foreign currency legacy debt owed to Chinese corporates in unrepatriated profits. Considering that several entities are owed huge sums of money, citizens are curious to know why the government has interest in the Chinese deal only."

Zimcodd added that while the foreign exchange market remains distorted, as there are many unscrupulous players, including perceived cartels, in a functional economy, exchange rates must be formalised and transparent.

A number of companies are saddled with legacy debts as a result of failure to repatriate foreign obligations due to stringent policies and foreign currency shortages fuelled by policy shifts.

It is not only local firms that have been affected, but foreign investors as well.Commenting on the issue, FBC Securities research and investment analyst Enock Rukarwa said while the move reaffirms government's commitment in restoring foreign investor confidence in the economy, delays in finalising the issue of legacy debts might make the policy less effective.

Rukarwa said withstanding de-dollarisation, a clear-cut ring-fencing policy on foreign investors can be a key enabler in curtailing continuous shrinkage of foreign participation on the ZSE.

"The Reserve Bank concern over the legacy debt reaffirms government's commitment to restore foreign investor confidence in the economy. Conversely, further delays in putting closure to the issue stifles existing thin foreign investment appetite on the local bourse. It seems the stock market has been subject to cycles of weakening economic fundamentals, policy inconsistency and political impasse softening foreign appetite," he said.

"More so, a well-developed stock market has a better capacity in easing information flow and reducing transaction costs, thereby easily attracting foreign participation. ZSE initiatives such as MOUs with regional stock exchanges and promoting cross-border investments remain the low-hanging fruits in providing foreign investment safety nets."

There is a widespread belief by market watchers that failure to identify root causes of the challenges being faced as a country will limit the scope of the central bank in addressing the macro-economic and fiscal challenges.

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