eBusiness Weekly
Martin Kadzere
With several companies struggling to get offshore loans due to the US$1,2 billion debt owed to foreign suppliers by local firms, the Reserve Bank of Zimbabwe (RBZ) is considering various options, including issuing out a long term bond, to raise the money in order to pay off the debts.
In July last year, after the introduction of the interbank market and conversion of bank balances to Zimbabwean dollars at the bank rate, the central bank assumed the legacy foreign debts of some corporates.
The debts, which the RBZ assumed related to external obligations which were not be remitted between January 2016 and February 2019 due to foreign currency shortages in the country. Then, the debts amounted to about US$2 billion.
At that time, the central bank used a priority list to allocate foreign currency. This resulted in huge foreign currency payments backlog as some companies which had received goods and services from foreign supplies in advance failed to pay.
Some foreign suppliers eventually cut credit facilities to minimise their exposure. Last year, some airlines threatened to reduce flights to Zimbabwe due to US$196 million debt in unremitted ticket sales.
The central bank then assumed the legacy debts on condition that the corporates would surrender their Zimdollar balances at an exchange rate of 1:1. This occurred about five months after the interbank market, which started with an opening exchange rate of 1:2.5 on February 22, 2019, had been introduced. As a result, the debts were assumed at a lower rate than what was prevailing at the time. While several companies having already surrendered their Zimbabwean dollars, the central bank is yet to pay off the debt. As reported by this publication in August this year, companies are now struggling to borrow offshore due to the legacy debt.
One of such companies affected is Olivine Industries, which despite its US$8,3 million loan having been approved by the African Development Bank (AfDB) in May this year, the bank is yet to get the money because of the debt. Treasury and central bank sources who declined to be named because they are not authorised to talk to press told Business Weekly that “two or three options” were being considered including issuing a long term bond.
“It is a matter that the central bank and Finance Ministry are ceased with and the announcement will be made shortly,” one source said. Another source said “of the options being considered, it would appear that they will settle for a long term bond.”
“It’s an issue that we need to address so that local companies could raise offshore capital.”
Several calls to seek comment from RBZ governor Dr John Mangudya and Minister of Finance and Economic Development Professor Mthuli Ncube were not answered.
