TINASHE MAKICHI
The Reserve Bank of Zimbabwe (RBZ) is finalising the legal framework that will allow the issuance of financial instruments to local companies to cover for the heavy and toxic unsettled foreign debt burden.
The legacy debts continue to weaken companies’ balance sheets and have remained a deterrent to companies’ chances of courting foreign investors as most investors demand clean balance sheets before extending the much needed fresh international capital.
RBZ governor John Mangudya said there were efforts to finalise this process to mitigate the financial challenges associated with the reporting of accounts.
“The process for the closure of putting in place a legal framework for the issuance of the financial instruments for the blocked funds is near completion,” Mangudya said.
The financial instruments, however, will be issued only to those companies that registered their legacy debts to foreign creditors with the RBZ.
They will also allow firms to balance their books.
“Both the Public Debt Management Unit of Government and the Bank are working tirelessly to finalise this process to mitigate the financial challenges associated with the reporting of accounts,” Mangudya said.
The governor added that the financial instruments would also address 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 more than 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 which have been attributed to legacy debts.
For local firms, the legacy debts have posed a threat to their viability.
The debt burden has spooked companies, which are now finding it difficult to borrow from offshore creditors and financiers.
Most lenders across the world have become risk averse when dealing with Zimbabwean companies.
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 have posed a massive challenge to productivity as suppliers of raw material 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 taps until a clear settlement plan of debts is laid out. In some instances, most manufacturing companies are being forced to do cash transactions as suppliers have since suspended availing raw materials on credit.
These 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.
Another debt instrument proposed in the past was the US dollar-denominated savings bond which at some point had interest rate of 7.5%, a minimum tenure of one year, enjoys tax exemption in line with government policy, has liquid asset status, and is tradable and accepted as collateral for overnight accommodation by the RBZ.
