HomeNewsRBZ must never dabble in quasi-fiscal activities again

RBZ must never dabble in quasi-fiscal activities again


The Parliamentary Portfolio Committee on Finance and Economic Development this week conducted public hearings on the Reserve Bank of Zimbabwe (RBZ) (Debt Assumption) Bill that is currently before the National Assembly.

In the House John Makamure

The hearings are in fulfilment of Section 141 of the Constitution that compels Parliament to consult interested parties about draft legislation under consideration by the legislative branch of government.

The Bill was gazetted on June 13 2014. It seeks to provide for settlement of certain liabilities incurred by the central bank before December 31 2008 amounting to over $1,1 billion.

The assumption of such a huge debt by Treasury will push Zimbabwe’s total public debt to over $10 billion or about 72% of the country’s gross domestic product/national income.

This also translates to over twice the size of the National Budget of over $4 billion in 2014.

What came out clearly from the hearings is that while the RBZ needs a clean balance sheet in order to focus more on its core business of banker to government and lender of last resort to financial institutions, the Bill in its present form falls short of meeting the basic requirements of good law.

Among other characteristics, a good law is one that is constitutional, is clearly drafted, whose benefits outweigh the costs, has been crafted after extensive consultations with interested parties, is gender sensitive, is enforceable and is consistent with existing laws and regulations.

I fully sympathise with Dr John Mangudya, the RBZ governor, who is desperate for a clean balance sheet in order to smoothly mobilise international financial resources to improve liquidity in the economy.

With such a huge debt, the central bank is considered a high credit risk and would find it very difficult to carry out this task.

The debt was incurred during the tenure of Dr Gideon Gono, who extensively got involved in quasi-fiscal operations which are supposed to be the mandate of the Ministry of Finance.

In theory, it makes sense for the government, through the Ministry of Finance, to take over any liabilities that are to do with fiscal policy.

The central bank’s mandate is to implement monetary policy and can only be responsible for government liabilities to do with those specific functions.

However, any policy and legal framework on debt assumption must satisfy the characteristics of good law highlighted above.

In other words, stakeholders that spoke at public hearings are not opposed to the Bill per se, but would like to see it drafted in a way that is beneficial to society at large.

The legislation must fully satisfy the public interest.

Financial institutions are generally concerned that the Bill does not seem to protect them from litigation by creditors. It is only the RBZ that is immune from litigation.

The creditors themselves are not sure if government assumption of the debt is the same thing as payment especially given the severely limited fiscal space in Zimbabwe whereby government cannot even raise adequate revenue to meet its wage bill.

Specific provisions relating to time frames on payment should, therefore, be included in the Bill to allay the genuine fears of those that are owed money.

Barring creditors from initiating or continuing with civil action or litigation against the RBZ as provided for under clause 4 (4), may be unconstitutional.

Section 69 (3) of the Constitution grants every person the right of access to the courts, or to some other tribunal of forum established by law for the resolution of any dispute. Legislating against approaching the courts to seek redress for a grievance appears to take away that constitutional right.

The other issue of concern arising from the public hearings is to do with the creditors and the debtors.

Many feel that the list of creditors is not exhaustive enough. Some have been lumped together, while others have been omitted entirely.

There is no corresponding list of those that benefited from the liabilities that government is assuming. Disclosing the beneficiaries will engender the necessary transparency in this debt assumption move.

Related to that is the recommendation to institute an independent audit and validation of the debt to be assumed.

The feeling is that it is against the principles of good corporate governance for the Debt Management Office, a department in the Ministry of Finance and Economic Development, to audit its own affairs.

And the whole audit and debt validation process must precede any debt assumption. The current arrangement is tantamount to putting the cart before the horse.

I have already highlighted that the origin of the huge debt to be taken over are the quasi-fiscal operations undertaken by the previous leadership of the central bank. Moving forward, it is the duty of Parliament to put in place mechanisms to ensure that RBZ does not get involved in quasi-fiscal activities ever again.

Lastly, Parliament should enforce constitutional provisions relating to debt contraction in particular Section 300 that requires an Act of Parliament to set limits on borrowings by the State, the public debt and prescribing terms and conditions under which the government may guarantee loans.

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