‘Ruling on US$ debt a grand heist’
By Everson Mushava
Tuesday’s Supreme Court ruling declaring that debts owed in United States dollars (US$) incurred on or before February 22, 2019 should be settled using the Zimdollar at a 1:1 parity will further deepen investor mistrust and complicate the prospects of economic revival, analysts have said.
The court upheld a government decree introduced in February last year through Statutory Instrument 33/2019 that converted debts accumulated in US$ to the local RTGS currency.
The ruling came after Zambezi Gas Zimbabwe Pvt Ltd appealed against two judgments of the High Court in June 2018 and May 2019 ordering the company to pay coal and chrome mining company, NR Barber Pvt Ltd, over US$3,8 million in debts.
Economist Godfrey Kanyenze said the ruling had thrown the country on the edge of an economic precipice exacerbated by worsening investor confidence, thereby jeopardising the country’s prospects of economic revival.
“We have regularised the abnormal and now, in terms of prospects of economic revival, the year 2020 will be complex due to the deepening mistrust and lack of investor confidence in the government,” Kanyenze said.
“No investor will want to keep money in the country. This is the second time assets have been transferred from the creditors to the borrowers.”
Kanyenze said the financial services and real estate sectors will be the worst hit.
“The people in debt will celebrate, creditors will mourn, which destroys the basis of the sanctity of lending and borrowing. This destroys the basis of the society, store of value and medium of exchange,” he said.
Kanyenze said government was the biggest beneficiary of SI 33/19 which eroded salaries as well as consumer buying power.
Another economic analyst John Robertson said there was need for government to change its policies and attitudes if ever it was to entertain prospects of economic recovery. He said Chief Justice Luke Malaba’s ruling maintained the 1:1 parity but at the same time mentioned the issue of value, which is at the core of the problems in Zimbabwe.
“The value of a Zimbabwe dollar today is between one seventeenth and one twenty-fifth of its value a year ago,” Robertson said.
“Unfortunately, government appears to be determined to pay back only a fraction of the amount they borrowed by selling Treasury Bills to our pension funds and banks.
“Even more unfortunately, they borrowed billions of US dollars and they don’t have, and never did have billions of US dollars to settle the debts.
“Creating and then devaluing the RTGS dollars was government’s only way out of debt because they now want to pay six US cents-worth of Zimbabwe money for every US dollar they borrowed. Once again, our bank balances and pension fund savings have been almost wiped out.
“To rescue the country, we have to start now to behave in ways that persuade investors that we are deserving of their trust. That will call for a complete change in government policies and attitudes.”
UK-based Zimbabwean lawyer, Alex Magaisa, in his legal opinion released on Tuesday, described the ruling as a “greatest heist” by government, saddled by an US$11 million domestic debt, adding it was “hard to make sense of the reasoning” of the judges.
“A reduction in an asset from US$3,8 million to US$144 000 is, by all accounts, a serious erosion and violation of one’s private property rights,” he said, adding the judges’ argument showed that there was erosion of private property rights.
“The government has reduced its domestic debt by theft. All those who are owed by the government must count their losses,” he said.
“One thing for sure though is that this judgment brings to the fore the hazardous nature of the Zimbabwean economic terrain for those engaged in trade and commerce. Just a simple decree can have devastating consequences.”
Lawyer Tawanda Nyambirai said the ruling was simply confirming what had been in place since February last year when SI 33 was introduced. “The effect was that all balances except foreign debts would be converted to local currency,” Nyambirai said.
“All our balances that were in US$ were converted using the 1:1 exchange rate. The effects, we started feeling them last year.
“The effects were devastating on employees, Zimbabwe dollar loosing value on fixed salaries pegged on US$. Consumers were affected and so were retailers who benchmarked their prices to the parallel rate where consumer spending had been cut. People were impoverished.”
He added: “This is why I applied to the High Court challenging SI 33 because it constitutes compulsory acquisition or deprivation of property without compensation.”
Nyambirai filed an urgent chamber application in July last year challenging SI 33, which now constitutes Financial Amendment No 7.
The court, however, ruled that the application was not urgent and had to give the opposing part time to file heads of argument, which they have now done and await a court date. NewsDay