Debate on RBZ Debt Bill lacks substance

By John Makamure

OPINION – I was this week hugely disappointed by the nature of debate in the National Assembly on the Reserve Bank of Zimbabwe (RBZ) Debt Assumption Bill. The debate lacked substance, and took an unfortunate partisan approach.

It was very clear from the contributions that some of the Members of Parliament had not even read the Bill. This is why they ended up making contributions that were wide of the mark.

The Reserve Bank of Zimbabwe (Debt Assumption) Bill seeks to provide for settlement of certain liabilities incurred by the central bank before December 31 2008 amounting to $1,35 billion.

The argument is that with a clean balance sheet, the Reserve Bank will be able to attract international financial capital, and focus on its core business of lender of last resort to banks and strong supervision of the financial sector.

Of course, this justification has its merits. The central bank is a key player in the economy mandated with formulating and implementing monetary policies.

Sound monetary policies are a key determinant of capital inflows. Economic agents would like assurances that their money is safe before making concrete investment decisions. The central bank is there to ensure that this much needed financial sector stability prevails.

The current huge debt overhang at the Reserve Bank makes it a high risky customer in the eyes of international financiers, thereby deterring capital inflows and the ability of the bank to effectively implement its monetary policies.

The other argument however is that a debt of over $1 billion is too huge in a country where public debt has reached unsustainable levels over $8 billion. The question that MPs should have asked is whether Zimbabwe, in its current perilous economic state, can afford it. Not a single MP posed this pertinent question.

Finance and Economic Development minister Patrick Chinamasa has already publicised chilling statistics on the public debt situation.

In his 2015 National Budget statement to Parliament on November 27 2014, he revealed that public and publicly guaranteed debt had reached $8,4 billion as of December 2014. This translates to 60 % of the country’s total value of goods and services produced in a year (Gross Domestic Product).

Of the $8,4 bn, $7,225 billion is external debt and the rest domestic debt.

To quote Chinamasa: “The country is therefore in debt distress characterised by large external payment arrears against the background of limited fiscal space and rising domestic debt.”

From this statement, the minister is obviously worried by rising domestic debt. The implication of his statement is that the country cannot afford additional domestic debt.

It does not need rocket science to understand that an additional $1,35 billion RBZ debt take-over by government will compound an already precarious situation. The country cannot afford it period.

The minister himself says so when he stated in the 2015 budget statement that the situation had been exacerbated by the prevailing large external account deficit at a time when the country has no reserves to withstand any shocks.

“This has significantly downgraded the country’s credit rating, thus constraining access to concessional financing and to international capital markets,” said Chinamasa.

These are the substantive issues that the MPs should be articulating, rather than the childish name calling business that sometimes characterise debate in the House.

The other issues the MPs should be raising extensively relate to what the Constitution says about issues of loan contraction.

One of the principles of public financial management as outlined under Section 298 is that public borrowing and all transactions involving the national debt must be carried out transparently and in the best interests of Zimbabwe.

This means the MPs must therefore fully satisfy themselves that all the information pertaining to the assumption of the RBZ debt has been disclosed before passing that piece of legislation.

There is also section 300 that requires Parliament to enact a law that sets limits on borrowings by the State, the public debt and debts and obligations whose payment or repayment is guaranteed by the State. The limits must not be exceeded without the authority of the National Assembly.

This law is long overdue in order for Parliament to exercise effective oversight on how the Executive mortgages the country’s future resources. At the moment there are no legal set limits on public debt, meaning the government can continue to incur liabilities at will.

Section 300 goes on to say that an Act of Parliament must prescribe precise terms and conditions under which the government may guarantee loans. The enactment of such a law will go a long way in avoiding situations like debt assumptions that are not in the public interest.

Clause 4 of the Bill that confers power on the Minister of Finance to fix terms and conditions under which he assumes responsibility for prior Reserve Bank debt is in my opinion not a good provision.

This provision should have empowered Members of Parliament, as representatives of the people, to determine the terms and conditions as these are public funds.

Section 3 of the Bill say prior RBZ debts assumed by government may be liquidated through issuance of Treasury Bills or any other government paper.

The truth of the matter is that creditors are not accepting these Treasury Bills because of their unattractive rate of return.

So what is the solution? As already pointed out above, the country cannot afford an additional $1,35 billion debt. The minister of Finance himself said so in his 2015 Budget Statement.

The economic ramifications arising from this debt take-over are too ghastly to contemplate. The only solution is for the RBZ to liquidate its non-core assets and pay this debt.

MPs must have a sober mind when debating important matters like this. Partisan interests must be thrown out of the window.

Mortgaging the country’s resources impacts negatively future generations. We need MPs that advance substantive arguments supported by research.

John Makamure is the Executive Director of the Southern African Parliamentary Support Trust. He can be reached on [email protected]