Industry faces headache over legacy debts

TINASHE MAKICHI

The industry has been plunged into a serious accounting headache culminated by the lack of a clear roadmap in the clearance of legacy debts by the Reserve Bank of Zimbabwe (RBZ), Business Times has established.

The RBZ had promised to issue financial instruments to guide the clearance of legacy debts which have continued to pose a serious threat to the viability of the industry.

One of the financial instruments was supposed to address the accounting issues especially on companies listed on the Zimbabwe Stock Exchange (ZSE). The apex bank’s Exchange Control, has to date processed and validated blocked funds amounting to US$1.2bn.

Despite the adoption of the debts by the central bank, most listed companies, according to accounting standards, are supposed to include those debts and the dilemma has also been around the rate considering that the legacy debts were adopted at 1:1. This has seen certain listed companies posting huge losses.

“The losses you are seeing in most companies’ financial results, it’s an issue of legacy debts of which some were guaranteed at 1:1. The accounting standards require that the companies must reflect the debts’ correct market value. It is the same with other institutions where one big bank has about US$30m lines of credit which is giving them a headache,” said a market analyst who requested anonymity.

Most lenders across the world have also now become risk-averse when dealing with Zimbabwe companies and industry of late has been raising concerns over continued delays in the issuing of an instrument by the RBZ.

Industrialist, Sifelani Jabangwe, said extinguishing of the legacy debt needed a long term approach, striking a balance between maintaining economic stability and debt clearance.

Jabangwe could not be drawn into commenting on the accounting headaches since he was not involved in ongoing currency negotiations between the central bank and industry.

“It will be important that these legacy debts are cleared. We need to see how there can be a balance between continued stability of the economy and payment of the legacy debts. There are various options on how legacy debts can be addressed,” Jabangwe said.

Economic analyst, Victor Bhoroma, told Business Times that poor debt management means Zimbabwe continues to have a high risk profile to potential financiers and is ungraded in terms of credit ratings.

“…legacy debts are impacting local production as businesses are failing to restructure their foreign debts or access new lines of credit for production purposes due to the huge legacy debts that were assumed by the government through the central bank. Poor debt management means that Zimbabwe continues to have a high risk profile to potential financiers and is ungraded in terms of credit ratings,” Bhoroma said.

“This increases the cost of funding to the government and the private sector, and in some cases it closes possible credit lines. Overall, lack of a debt servicing plan combined with a plunge in commodity prices (Especially Gold, Platinum, Tobacco and Nickel) can trigger an economic crisis in the country. This will lead to Zimbabwean Dollar depreciation and slow economic growth.”

RBZ governor John Mangudya did not respond to questions sent to him by email and he was also not picking calls.

In his Monetary Policy Statement last year, Mangudya announced that all foreign liabilities or legacy debts due to suppliers and service providers such as the International Air Transport Association, declared dividends among others, shall be treated separately after registering such transactions with Exchange Control.

This move by the RBZ to ring-fence and delays in the laying out of a settlement road map has posed a challenge to productivity as most raw material suppliers have been holding on to their products.

Most companies, for instance, in the cooking oil industry have been facing raw material challenges as suppliers have closed tap until a clear settlement plan of debts is laid out.  In some instances, most manufacturing companies are now forced to do cash transactions as suppliers have since suspended availing raw materials on credit.

The legacy foreign debts, which were assumed by the central bank in accordance with Circular 8 of 2019, cover the period between January 2016 and February 2019.