On Tuesday, the National Assembly passed the Reserve Bank of Zimbabwe Debt Assumption Bill meant to capacitate the central bank to resume most of its core functions.
The Bill is now set to be presented to the Senate and, if it sails through, will be forwarded to the President for his assent to become law. The assumption of the $1,3 billion debt points to the Government’s willingness to create confidence in the financial sector.
Now that the Bill has sailed through the National Assembly, we expect the Senate to expedite its passage to allow for the conclusion of the central bank debt assumption.
For a long time, the RBZ was saddled by the huge debt, the bulk of which accumulated during the agricultural mechanisation programme, about a decade ago, when the RBZ got involved in quasi-fiscal activities to support key economic sectors.
The debt has curtailed the central bank’s capacity to perform its primary roles as the banker and advisor to the Government and from carrying out its function as the lender of last resort.
The takeover of the debt is part of Government efforts to rebuild confidence in the financial system and economy in general, a critical component for economic revival.
These, apart from interventions at the central bank, include re-engagement with the West, particularly the European Union, as well as global financial institutions. The Government is also working on reviewing laws that have a bearing on investments while processes to improve doing business conditions are at an advanced stage.
As such, we applaud efforts by the Government to clean up the balance sheet of the RBZ so it can resume it monetary policy function and roles as banker to the Government.
The bank manages Government debt, acts as registrar of Government stock and conducts the Treasury Bill tenders. Transactions between Government and the bank have wide implications on the entire economy.
The debt takeover will allow the central bank to resume its role of lender of last resort, a critical function that provides stability in the financial sector.
It is critical for the bank to resume its full functions including accepting deposits from banks, which maintain current account balances with the bank. From these accounts, transactions such as purchases and sales of foreign exchange, withdrawals and deposits of notes and coins and the settlement of clearing differences are passed.
The bank also acts as lender of last resort to the banking institutions to ensure that liquidity is readily available for the smooth operation of the banking system. We must not lose sight of the fact that the state of a financial services sector is a barometer investors also use to assess the investment climate of an economy. A weak financial services sector scares away investors and retards economic recovery and growth.
While we applaud the pace at which the Government is moving to address the RBZ debt issue, there is also need for thorough validation of the debt particularly given concerns around amounts owed to some creditors, for instance Meikles Limited.
We call on the Government to consider roping in the Office of the Comptroller and Auditor-General and other independent reputable auditors in the validation process.
This will ensure that there will be no potential litigations or obligations that may arise from overstating or understating the debt.