Government’s secretive $500m loan guarantee book

Source: Government’s secretive $500m loan guarantee book | The Financial Gazette June 29, 2017

THE Government of Zimbabwe did not disclose names of entities with nearly $570 million in foreign loans, an audit has found, raising suspicions Treasury could be hiding delinquent borrowers and potentially exposing taxpayers to substantial liabilities.

In 2015, government passed a law which saw the tax payer taking over a $1 billion debt, contracted by the Reserve Bank of Zimbabwe through its various quasi-fiscal operations, but defiantly refused to disclose the beneficiaries of the central bank’s largesse.

An audit of government’s statement of contingent liabilities for 2014 also reveals that Treasury kept a shambolic register.

Contingent liabilities are loans advanced by foreign lenders to parastatals, municipalities, statutory funds and private firms, which are guaranteed by government.

A government-guaranteed loan requires government to repay any outstanding amount on a loan in the event of default.

“The register for guarantees submitted for audit was not being updated timeously and did not also contain all the relevant details such as the original foreign currency repayments made during the year,” the latest Auditor General’s report says.

“Furthermore, Treasury did not disclose the details of the purpose and the names of beneficiaries (debtors) for loans amounting to $567 537 792. Failure to maintain an accurate loan guarantee register and lack of supervision resulted in the omission of loans details.”

The AG warned that financial statements could be misstated if the register is not updated and has incomplete information.

Recent foreign loan debacles involving funds borrowed to fund fuel imports, farm equipment, inputs and manufacturing sector revival, among others, could explain government’s reluctance to disclose the names and details of entities whose loans it has guaranteed at the potential expense of the taxpayer.
Government has issued Treasury bills worth $925,5 million to pay off the RBZ debt, to be settled using tax funds.

In 2009, government invested $18 million, part of a $50 million Zimbabwe Economic and Trade Revival Fund loan from the African Export Import Bank, into Interfin Bank.
The bank collapsed a year later, leaving government to carry the liability.

Farmer’s World, a shadowy farm equipment supplier, failed to service a government-guaranteed $60 million China Export Import Bank loan.

Government, as guarantor, stepped in to pay $35 million towards settling the debt.
A 2014/15 Preferential Trade Area $10 million farm input scheme lost 10 percent of the total cash available to fraud, while the AG noted that no investigation had been carried out to establish whether the inputs had reached the programme’s intended beneficiaries.