HARARE – Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono says they are not panicking over a High Court decision ordering the central bank to reimburse millions of dollars it withdrew from a local company at the height of the country’s economic meltdown in 2007.
Last week, the High Court ordered the central bank return to Trojan Nickel Mine Limited (Trojan) bank account, over $1 million it owes the mining giant.
But Gono insists all is in order.
“We are not losing sleep over the matter. The funds were not used by the central bank, but it was something that we had to do to keep the country going,” Gono told the Daily News on Sunday last week on the sidelines of an International Monetary Fund (IMF) function.
The seizure of the funds followed a monetary policy statement issued by the RBZ in October 2007 centralising all foreign currency accounts and directing the lodgement, at its doorsteps within 24 hours, of all corporate foreign currency balances held by authorised dealers.
This was part of efforts to stem the imminent collapse of the economy, which had suffered from years of economic misuse and bad policies by the then Zanu PF-led government. The centralised order saw authorised dealers of foreign currency being forced to hand over their clients’ money to the RBZ.
While the RBZ insisted that it had no legal relationship with corporates and individuals who remitted their money to the central bank, from which liability could arise, the High Court last Thursday ruled in favour of the mining firm.
Gono said the central bank will soon be issuing a comprehensive response to the High Court ruling.
Economist Christopher Mugaga said the apex bank — which has been trying to distance itself from the claims, arguing that it had no legal relationship with either companies or individuals who unwittingly funded Zanu PF during that time — has no capacity to pay back.
“Remember about 95 percent of domestic debt originated from RBZ’s activities prior to dollarisation and the ruling is simply null and void considering the bank’s failure even to pay its former employees their retrenchment packages,” he said.
Mugaga said it will be difficult for other companies, which are owed by the financial institution, to fight it “considering the apex bank has unfettered control over exchange control regulations which will make doing business difficult for the aggrieved firm”.
Another economist John Robertson concurred with Mugaga.
“The amounts seized by the RBZ total more than a billion dollars, and a great many of the other companies and individuals are going to lodge a claim with the precedent of this case being used. It will lead to more anxiety and frustration rather than settlements.
“There will be a great many people still waiting for settlement in six months’ time,” Robertson said.
Other political analysts however, contend that Gono’s confidence stems from the fact that Treasury and RBZ have agreed on a draft bill that will enable government to take over the Central Bank’s $1,1 billion debt.
The takeover of the debt is the last leg of reforms at RBZ that began in 2009, when it was ordered to stop engaging in quasi-fiscal activities blamed for quickening Zimbabwe’s hyperinflation.
Finance minister, Tendai Biti recently said 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 $80,2 million in central bank lines of credit, has a non-resident sovereign debt of $452,6 million, non-resident institutional debt $110 million and domestic debt (bank/deposits) of $439 million.
The RBZ contends that it is also owed $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 by the International Monetary Fund (IMF), which argued that the bank’s balance sheet needed to be freed of debt.
In the Article IV consultation report last year, IMF said the debt was constraining the 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 non-core 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. – John Kachembere