via Govt takes over RBZ debt | The Herald November 28, 2013 by Happiness Zengeni
CABINET has approved the takeover of the US$1,35 billion Reserve Bank of Zimbabwe debt by Government in what should pave the way for the smooth recapitalisation of the central bank and repayment of foreign currency account balances taken over during hyperinflation.
Government will assume the RBZ’s domestic debt of US$754,3 million to add it to its existing domestic stock of US$390 million, to give a total outstanding domestic stock of US$1,1 billion.
The central bank’s external debt stands at US$596,02 million which will become part of its stock of existing external debt of about US$7 billion.
According to the proposal seen by The Herald, the debt would be paid through issuance of Treasury Bills (TBs) to banks from which the amounts were levied by the RBZ.
This will be subject to the understanding that the banks will immediately settle small amounts owed to non-corporates of US$500 and below, without waiting for the maturity of the TBs.
The TBs will have a two to five year tenure as reflected in the accounts sitting with the affected banks. The proposed interest rate for these instruments is between 3,5 percent and 5 percent per annum.
In addition, prescribed asset status and features like tax exemption may be granted to the instruments. Government also adopted to settle Statutory Reserves totalling US$83,4 million owed to banking institutions by the RBZ.
The first maturity on the two-year TBs of US$25 million is due on December 31, 2013 while other maturities amounting to US$146 million are due next year. Government will therefore repay the principal amounts on the TBs in staggers from 2015 onward.
The move will go a long way in restoring confidence in the banking sector as well as improve the liquidity of firms whose FCA balances are locked up in the RBZ. For banks, it would enable conversion into earning assets and at the same time ensuring that the maturities do not constrain current Government commitments.
Several companies, NGOs and individuals have instituted legal proceedings against the RBZ over the past couple of years to recover their monies, which the central bank withdrew from bank accounts.
Finance Minister Patrick Chinamasa said Government was making efforts to improve the financial sector.
“We need to restore the role of the RBZ as a banker to Government and as lender of last resort. We need to capacitate the RBZ to supervise the financial services sector adequately as well as establishing interbank lending. All that will cost money but if we demonstrate confidence I am sure that the money will come. For instance the capitalisation of RBZ requires a cool US$200 million while re-establishing interbank lending will need US$400 million,” he said.
The move paves way for the recapitalisation of the institution by both local and foreign investors. It will also facilitate the ability of the central bank to engage in fruitful commercial relationships, which include the mobilisation of foreign lines of credit on behalf of the commercial banks.