Legal matters: Discharging foreign currency denominated debts and liabilities

File pic: USD notes

In my previous article last week, I focused on how corporates, entities and individuals alike can deal with recovery of debts.

At the end of the article, I derived satisfaction from having dealt with some little known or appreciated ghost that always rears its ugly head in debt collection  — the monster of prescription.

For those who appreciate the power of law, they know that it ruthlessly applies even where it is not called to do so.

Corporates ought to appreciate that the law is like the wind, you can only do little or nothing to stop its movement or direction of flow.

Whatever we agree on, or decide to do as corporates or in individual agreements, the law is part of the agreement by default.

The government enacted Statutory Instrument 33 of 2019 (“the SI”) on February 22, 2019.

It has been a while after this SI was enacted, however for the business community, its effects are so obvious.

It introduced rates to be applied when discharging liabilities incurred prior to its promulgation as well as those after its effective date.

It is important to appreciate the import of that piece of law because its effects are widely evident.

The purpose of this article is to give Zimbabwe some live insights into the dictates and ongoing implications of its provisions on the discharge of foreign currency denominated debts.

The SI and discharge of debts

The provisions of the SI were formally incorporated into the Finance Act No. 2 of 2019.

The other effect of the SI was to provide for an electronic currency — the RTGS dollar, making it legal tender in Zimbabwe.

The most profound provisions of the Act became section 22 (1) (d), (e) which in simple terms proscribed that:

l for purposes of discharge of financial or contractual obligations, all liabilities and debts that were, immediately before 22 February 2019 (“the effective date”), valued and expressed in United States shall, from the effective date, be deemed to be values in RTGS or Zimbabwean dollar at a rate of one-to-one to the United States dollar;

l beyond the effective date, any variance from the opening parity rate shall be determined from time to time by reference to the prevailing bank rates usually prescribed by the Reserve bank of Zimbabwe.

It appears that most corporates and businesses alike do not fully appreciate the impact of the law as enunciated in the SI.

The clearest position of the law settled by the SI is that debts incurred by any person before February 22, 2019 may be fully, effectively and completely discharged by payment of an equivalent ZW$ amount at the rate of 1:1 to the US dollar.

As I mentioned in my previous article, the Prescription Act (Chapter 8:11) gives the best definition of a “debt” as including “anything which may be sued for or claimed by reason of an obligation arising from statute, contract, delict or otherwise.”

In order to ascertain when a debt arose, reference is to the time when the contract or statute as case may be provided for such.

Paragraph (f) provided that the law applies as well to statutory debts — debts arising from statutory provisions.

These could be debts owed to parastatals, local authorities or governments departments.

It provides that “every enactment in which an amount is expressed in United States dollars shall, on the first effective date…be construed as reference to the RTGS dollar, at parity with the United States dollar, that is to say, at a one-to-one rate.”

The 1:1 rate for debts incurred prior to 22 February 2019 and Supreme Court judgment in NR Barber v- Zambezi Gas

So the 1:1 rating for debts incurred before February 22, 2019 applies to all such debts. 

This position of the law in Zimbabwe has been endorsed by the Supreme Court in the case of NR Barber PL vs Zambezi Gas PL.

The point that I was to clarify through this judgment is that the High Court had given a court order for a US Dollar amount payable in US dollars.

Despite that the court order was in US dollars, the Supreme Court agreed that the debt would be discharged at 1:1 rate since it was incurred prior to February 22, 2019.

The court considered the plain meaning of the Statutory Instrument that “(all liabilities expressed in US dollars before the effective date shall thereafter be values in RTGS /ZW dollars)”.

These debts are still part of us and the law is applicable.

The place of the interbank rates

I must now make a distinction between the 1:1 rates for liabilities expressed in US dollars  before February 22, 2019 on one hand, and those liabilities incurred in US dollars after February 2019.

It must be appreciated that post the effective date, debts are legally discharged by payment in ZW$ applying the prevailing interbank rate as published from time to time by the Reserve Bank of Zimbabwe.

The difference between the 1:1 rate and the bank rate is that whereas the 1:1 rate applies automatically at proscribed rate, the debts for which the bank rate applies are utilised at the option of the debtor.

Any US dollar debt incurred after the effective date may be payable at bank rate.

It must be appreciated that for the bank rate to apply in the discharge of the US dollar debt, the one owing must discharge the payment in local currency.

What this means is that the interbank rate is not applicable where a debtor discharges the debt in US dollars.

Where one discharges a US dollar debt through payment of US dollars, the debtor would have waived their right to discharge their debt in local currency.

To sum up, where you incurred a liability in US dollars prior to February 22, 2019, you can discharge that debt in local currency at the rate of 1:1. The law has not changed.

On the other hand, where you owe after February 22, 2019 in US dollars, you may lawfully discharge the debt in ZW$ applying the bank rate.

If you decide in either case to pay US dollars, through ignorance or otherwise, the payment will be rated at bank rate but as US dollar at the rate of 1:1.

This last part would require much legal meditation.

Based on the above legal position, it is wise to insist on accelerated payment of debts or to ensure that your contracts provide for a shorter period within which obligations are discharged to avoid defaults leading to court action.

We have observed that enforcement of contractual obligations through courts inevitably results in discharge of debts in local currency.


This article is not meant to be legal advice nor is it meant to be exhaustive of the subject under discussion.

Should you require specific legal counsel on related matter, you may contact the author or consult an attorney. Majachani is a partner at Alex F and Associates, Attorney – he can be contacted on [email protected]

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