Zimbabwean firms are struggling to fund a heavy toxic unsettled foreign debt burden after the central bank forced companies to transfer balances to the apex bank by the end of this week.
The move by the Reserve Bank of Zimbabwe (RBZ) to direct local firms to off-load the long standing debts to the central bank comes after the monetary authorities liberalised the foreign currency market and introduced an interbank market in February this year, with the
exchange rate moving from the 1:1 parity against the United States dollar to 1:2.5.
Last month, government banned the use of multi-currencies by making the Zimbabwean dollar the sole legal tender. And now RBZ want to pay the legacy debts, which were accounted for at 1:1 as part of efforts to mop up excess liquidity.
George Guvamatanga, the permanent secretary in the Ministry of Finance and Economic Development disclosed that firms were struggling to transfer legacy debts as they had utilised the amounts and taken positions elsewhere as remittances of foreign payments took longer.
“The money is required by the Reserve Bank of Zimbabwe (RBZ) this week,” Guvamatanga said at the KPMG Audit Committee Forum held in the capital last week. “But, companies are struggling to fund these legacy debts. The governor wants money this week, but companies don’t have.”
Several captains of industry told Business Times that they are now facing difficulties in transferring the debts and were now negotiating with the RBZ governor for more time to raise the required local dollars.
Guvamatanga hinted that the troubled companies might not get the endorsement they needed. “If the governor consults me (Guvamatanga), I will say no (to extension of timeframe),” he said without elaborating further.
Speaking at a breakfast meeting organised by the Daily News in conjunction with AB Communications on the implications of the new currency held in the capital this week, RBZ governor, John Mangudya said local companies were struggling to fund legacy debts
because they don’t have local dollars to cover for unsettled foreign debts obligations.
“We wrote to companies last week directing them to pay for their blocked funds (legacy debt) to us at 1:1 but they have no local dollars to transfer to us,” Mangudya said.
He added: “This means there is something wrong with this economy. It’s a sick economy. We are (however) putting in place measures to deal with legacy debt or blocked funds. Companies could not send money outside the country because there is no foreign currency.”
Finance Minister, Mthuli Ncube and the Confederation of Zimbabwe Industries (CZI) president, Henry Ruzvidzo, reaffirmed Guvamatanga and Mangudya’s sentiments.
“Legacy debts are for the private sector not government. But, government will assist firms. We are quantifying those and we are going to resolve the issue,” Ncube said.
Ruzvidzo, said: “Companies had the funds to pay but there was no foreign currency at 1:1 to pay foreign principals with authorities (RBZ) saying no your issues will be dealt with later. Now, we (industry) are battling paying legacy debt. We need to make presentation (on the legacy debts mechanism) to the governor of Reserve Bank of Zimbabwe.”