Government takes over RBZ debt

Published: 03 July 2013

GOVERNMENT says it is ready to take over Reserve Bank of Zimbabwe's (RBZ) US$1,1 billion debt and has asked the International Monetary Fund (IMF) for technical assistance to strengthen the bank's accounting and internal auditing systems.

The takeover of the debt--recommended by the IMF after an annual visit in 2011 - would be done through the RBZ Debt Relief Bill set to go through Parliament by the end of September and is the last leg of reforms at the central bank.

In an attachment to the letter of intent for an IMF's Staff Monitored Programme (SMP) Harare said that restructuring of RBZ's balance sheet was key to increasing financial sector stability and it had various options in place.

"We expect to bring this project to the implementation phase in 2013 with the submission to Parliament of the RBZ Debt Relief Bill by end-September," it said.

IMF recently approved an SMP for Zimbabwe that would run up to December.

An SMP is an informal agreement between country authorities and Fund staff to monitor the implementation of the authorities' economic programme.

SMPs do not entail financial assistance or endorsement by the IMF Executive Board.

The SMP focusses on putting public finances on a sustainable course, while protecting infrastructure investment and priority social spending, strengthening public financial management, increasing diamond revenue transparency, reducing financial sector vulnerabilities, and restructuring the central bank.

"This Bill [RBZ Debt Relief Bill] will provide for the creation of a Special Purpose Vehicle which will warehouse the RBZ's non-core assets and liabilities, thus allowing the RBZ to focus on its core business," government said.

RBZ owes US$80,2 million in central bank lines of credit, has a non-resident sovereign debt of US$452,6 million, non-resident institutional debt (US$110 million) and domestic debt (bank/deposits) of US$439 million.

The central bank contends that it is also owed US$1,5 billion by government, when it engaged in quasi-fiscal activities to finance critical needs such as funding elections, sustaining parastatals and financing the farm mechanisation exercise, among others.

In a 2011 Article IV consultation report, IMF said the debt was constraining the central bank's ability to undertake liquidity provision and distracts it from focusing on its core functions.

"Proposed modifications to the RBZ Debt Relief Bill will focus on transferring the liabilities from RBZ's balance sheet to a fund managed by the finance ministry," IMF said.

"While this is a less balanced approach than the comprehensive balance sheet bifurcation [splitting] recommended by Fund TA [Technical Assistance] missions, it remains consistent with the objective of restructuring the RBZ balance sheet."

Zimbabwe asked IMF for technical assistance in financial sector diagnostic assessment, review of RBZ's accounting and IT systems and manuals, internal auditing, accounting and documentation system and corporate governance and reporting practices.

It also asked for technical assistance in areas such as risk-based bank supervision, regulation of non-bank financial sector and assessment of financial sector legislation.
- The Standard