On March 12 this year, the Ministry of Finance and Economic Development issued a notice notifying the country that Government had in terms of section 300(3) of the Constitution of Zimbabwe, issued guarantees to a number of private entities which had borrowed funds from the Commercial Bank of Zimbabwe (CBZ). The loan guarantees triggered debate in the country`s discursive spaces, as some felt the decision would eventually burden taxpayers while others felt private players needed Government assistance to recover from Covid-19 inflicted setbacks.
Our Senior Reporter Leroy Dzenga (LD) interviewed Finance and Economic Development Permanent Secretary Mr George Guvamatanga (GG) to get an understanding of the policy rationale behind the decision to give the contentious guarantees.
LD: Government recently gazetted loan guarantees to several private sector players in the tourism and manufacturing industry. What is the background to this arrangement?
GG: On May 1, 2020, The President of the Republic of Zimbabwe, His Excellency, E.D. Mnangagwa, unveiled an $18 billion Economic Recovery and Stimulus Package aimed at reinvigorating the economy and providing relief to individuals, families, small businesses and industries impacted by the economic slowdown caused by the coronavirus and the attendant response measures implemented by the government to control the health crisis.
Through the Press Statement of June4, 2020 (Annex 1), Government announced the Guidelines and Modalities for the Stimulus Package wherein the Productive Sector facilities comprising of Agriculture Sector Support, Working Capital, Mining Sector and Tourism Support Fund will be accessed through the normal banking channels.
Applicants/intended beneficiaries should submit their requests to their bank with the requisite information.
Through the risk sharing model, banking institutions will do their credit assessments and due diligence. Government will provide guarantees and banks will monitor and evaluate the use of the resources by borrowers.
The guarantees were, therefore, issued in line with these Guidelines and Modalities for the $18 billion Economic Recovery and Stimulus Package, Section 300 (3) of the Constitution and Section 20 of the Public Debt Management Act (Chapter 22:21).
Section 20 of the Public Debt Management Act (Chapter 22:21) provides that the Minister of Finance and Economic Development may in such a manner and upon such conditions he or she thinks fit on advice of the External and Domestic Debt Management Committee and the Debt Management Office, guarantee the repayment of the capital and the payment of expenses or charges incurred in connection with:
- a) any indebtedness or other financial obligation raised, incurred or established inside or outside Zimbabwe by a person approved by the Minister in the public interest or in the interest of the economy of Zimbabwe; or
- b) any indebtedness or other financial obligation raised, incurred or established, as the case may be, outside Zimbabwe for the purposes of the trustee of the District Development Fund Act [Chapter 29:06] or a designated corporate body referred to in paragraph (a) of the definition of “public entity” in section 2 of the Public Finance Management Act, or a local authority.
LD: Last year, the Government announced the $18 billion stimulus package for various sectors of the economy which was to be disbursed by private finance institutions. What has been the uptake for this initiative from industry?
GG: It is pertinent to note that the stimulus package remains demand driven and hence any disbursement and Government Guarantees would be in response to applications from various sectors through the normal banking system.
The following Guarantees have been issued under the Stimulus Package in line with the risk sharing framework of the Covid-19 Economic Recovery and Stimulus Package (as shown in the graph provided).
LD: What criteria did these companies satisfy to be eligible for this guarantee?
GG: This is guided by the Zimbabwe Public Debt Management Framework for evaluating, monitoring and managing guaranteed and on-lend loans.
The objective of the Framework is to guide the Zimbabwe Public Debt Management Office in evaluating guarantees and on-lend loans in a transparent and consistent process.
It spells out all the relevant stages that ensure efficient and effective evaluation, monitoring and managing of guaranteed loans and on-lend loans.
It also provides an evaluation methodology that involves a credit risk assessment and scoring for determination of relevant fees.
It is also important to note that Government Guarantees have been issued only to those applicants who have demonstrated capacity to repay loans as determined by the independent credit granting process of the Intermediary banks.
LD: Considering that any eventual failure to pay back the loans will be shouldered by the taxpayer, were there consultations at any level before the decision to grant them a guarantee was taken?
GG: The guarantees were issued by the Minister of Finance and Economic Development in line with Section 20(1) of the Public Debt Management Act (Chapter 22:21) which provides that the Minister of Finance and Economic Development may in such a manner and upon such conditions he or she thinks fit on advice of the External and Domestic Debt Management Committee and the Debt Management Office issue such guarantees.
Furthermore, and in line with Section 20(3) of the Public Debt Management Act (Chapter 22:21), prior to issuance of loan guarantees, the Public Debt Management Office shall conduct or cause to be conducted a due diligence audit on the capacity of the beneficiary to repay the loan.
LD: How many other private players are set to benefit from these guarantees?
GG: The Covid-19 Economic Recovery and Stimulus Package is demand driven, and hence Government will process the applications for the guarantees as and when they are submitted through the banking system guided by the provisions of the Public Debt Management Act.
Government through the Press Statement of 4 June 2020, advised the public on how the private sector would benefit from these guarantees through the normal banking channels.