PHILLIMON MHLANGA
The Reserve Bank of Zimbabwe (RBZ) is scrambling to pay off long standing foreign debts on behalf of troubled local companies with the central bank governor, John Mangudya indicating that it will take up to 10 years to clear the obligation.
The legacy debts, incurred following the introduction of the local currency in 2019, were assumed by the central bank.
RBZ has failed to clear the foreign debts on behalf of companies despite directing firms to transfer balances at 1:1 to the apex bank.
But Mangudya said it will take longer to clear the debts, amounting to about US$3.5bn.
“We want to ensure that smaller amounts of blocked funds are expunged between two and three years.
“We have started to do so. But, for larger amounts, it will take up to 10 years depending on the amount,” Mangudya said.
The legacy debts have resulted in several companies suffering serious exchange losses mainly arising from their foreign obligations.
The viability of local companies has also been under serious threat as the unsettled foreign obligations have already seen some suppliers of critical raw materials stopping supplies to Zimbabwe, demanding cash up front.
The situation has left companies battling a huge financial burden.
There are growing fears that the central bank will struggle to honour the commitment given that the country has been reeling from foreign currency challenges.
The apex bank promised to pay foreign creditors on behalf of the local companies after the government declared the Zimbabwe dollar the sole legal tender through Statutory Instrument 142, which effectively outlawed the use of the greenback and other external currencies.
The government wants to come up with a legal instrument to enable the RBZ to settle the foreign debts on behalf of the local companies.
The blocked funds have been choking local firms and the delay in settling continues to negatively affect their balance sheets making it difficult to court foreign suitors, who demand clean balance sheets before injecting fresh international capital.
Most of the financial results for local companies, published recently, show that delays in settling foreign obligations were weighing down the operations of companies that have lodged their applications for relief with the central bank.
This has seen companies with significant foreign debts sinking deeper into dire straits due to currency volatility and exchange rate fluctuations, with their balance sheets being increasingly eroded and foreign currency liabilities ballooning.
This has left most of the companies technically insolvent and on the brink of bankruptcy.
