FINANCE minister Mthuli Ncube yesterday unwittingly
confirmed government committed a grand US$7 billion fiscal heist — by design or
accident — when it banned without warning the multi-currency system and
resuscitated the Zimdollar as the sole legal tender in June.
While individuals and companies were undeniably robbed of
their incomes and value due to the currency volatility and reform, starting
with the liberalisation of the exchange rate in February after insisting the
bond note was equal to the United States dollar and then specifically through
the return of the Zimdollar in June, Ncube inadvertently admitted effectively
government mugged its domestic creditors of about US$7 billion.
The smoking gun is in debt figures contained in his budget
review statement delivered in parliament yesterday.
“Zimbabwe’s total debt stock is estimated at ZWL$66,8
billion as at the end of June,” Ncube told parliament. “As at the end of June
2019, external public and publicly guaranteed debt position is estimated at
US$8 billion (ZWL$58,1 billion, of which almost US$5,9 billion (ZWL$42,7
billion) is accumulated arrears.
“Multilateral institutions are owed a total of US$2,5 billion
(ZWL$18,5 billion), of which the World Bank is owed US$1,5 billion (ZWL$10,6
billion), African Development Bank US$702 million (ZWL$5,1 billion), European
Investment Bank US$309 million (ZWL$2,2 billion) and other multilaterals US$74
million (ZWL$535 million).
“Total bilateral debt amounted to US$5,5 billion (ZWL$39,6
billion), with Paris Club creditors accounting for US$3,5 billion (ZWL$25,1
billion) and non-Paris Club US$1,6 billion (ZWL$11,3 billion).”
When Ncube presented his 2019 national budget in November
last year, he said the country’s domestic debt stood at US$9,6 billion, while
the total debt was US$17,6 billion. This meant external debt was US$8 billion —
which it remains as now.
The dramatic change, though, has been on the domestic debt.
From US$9,6 billion, it is now a mere ZWL$8,8 billion (US$880 million).
“Consequently, adherence to sound fiscal and monetary
policy reforms allowed containment of domestic debt stock which stood at
ZWL$8,8 billion as at end June 2019, down from ZWL$9,5 billion as at December
31, 2018,” Ncube said.
Scrutinising Ncube’s figures reveals a US$7 billion heist.
However, first of all there are mistakes which must be
highlighted. The main one is that the domestic debt was reported as US$9,6
billion in November last year, not ZWL$9,5 billion. It was in US dollar terms,
hence the US$17,6 billion total public debt stock, with external debt standing
at US$8 billion.
It is thus incorrect to report that “domestic debt stock
stood at ZWL$8,8 billion as at end June 2019, down from ZWL$9,5 billion as at
December 31, 2018”.
The heist is hidden in the new total public debt figure of
ZWL$66,8 billion. If the national debt was US$17,6 billion at the end of last
year and all along until June, how did it end up as ZWL$66,8 billion (effectively
US$6,68 billion which is even lower than the external debt alone at US$8
billion)?
Calculations show that when Ncube said the US$8 billion
external debt as at the end of June was equal to ZWL$58,1 billion, it implied
that the ruling average exchange of US$1: ZWL$7,2 was applied in government
fiscal review and supplementary budget calculations.
Having done that, Ncube and his team then simply converted
the US$8,8 billion domestic debt — after it had dropped from US$9,6 billion or
US$9,5 billion following an intervention through a series of fiscal measures —
to ZWL$8,8 billion.
This was then followed by a simple calculation of
multiplying the external debt of US$8 billion by the 7,2 average exchange rate
and then adding the converted ZWL$8,8 billion domestic debt to roughly end up
with ZWL$66,8 billion as the total public debt stock.
In the process, government avoided paying US$7 billion in
domestic obligations to local creditors — which is practically robbery as what
happened in 2008 — by technically moving away from US$8,8 billion to ZWL$8,8
billion using the currency regime change and resultant exchange rate soon after
June 24. The multicurrency system was suddenly banned on June 24. So after
outlawing the multicurrency as legal tender, local lenders to government were
prejudiced as much as US$7 billion.
Government abandoned its policy of 1:1 parity between the
US dollar and the RTGS dollar on February 20 and then banned the multicurrency
regime on June 24. Through this arbitrary action, banks and other lenders have
lost as much as US$7 billion in real terms. However, when individuals and
companies are factored in, the figure sharply rises to multi-billions in
prejudice.
Instead of getting both the principal and interest on their
investment, financial institutions will get to retain only 10% of the original
value. This means a value loss of more than 90% if interest on the paper is
taken into account.
For instance, an investor who invested US$1 million at a
rate of 5% over five years would have got interest of US$250 000.
Hypothetically such an investment would have had a future value of US$1,25
million when the principal is added to interest. Actually, such an investor
would receive US$125 000 if he/she had bought the paper from the Zimbabwean
government.
The decision has far-reaching consequences given that
investors elsewhere generally believe that sovereign debt is a safe or
risk-free investment.
When the paper was sold to market players, Zimbabwe was in
a state of deflation, hence did not have an inflation premium ascribed to the
instruments and zero default risk.
Additionally, this has also prejudiced the banking public
who had saved with local financial institutions. Banks act as financial
intermediaries between depositors, investors, borrowers and the public.
Ncube’s inadvertent admission of the grand heist came as
London Stock Exchange-listed Cambria Africa won a court case against local
company Breastplate Services (trading as Nemchem International) over the
payment of outstanding share obligations in US dollars in line with a legal
agreement signed by the two companies.
The judgement is likely to be used as a legal precedent
going forward for individuals and corporates who have payment disputes dating
back to the multicurrency system era signed in similar or related
circumstances.
While government has managed to evade its obligations
through currency reform, it has failed to beat inflation.
Hence, Ncube presented a ZW$10,8 billion supplementary
budget, with the money going to recurrent expenditure (ZW$5,8 billion);
employment costs (ZW$1,5 billion); goods and services (ZW$3,7 billion) and
interest payments (ZW$160 million), among others.
He has revised the budget for various ministries, with the
Agriculture ministry getting the largest vote. He then allocated agriculture
ZW$4,382 billion up from an initial vote of ZW$989 million in the 2019 budget.
The other money from the supplementary budget goes into
grain imports, paying civil servants, social service delivery, infrastructure
and utilities, constitutional requirements, governance and structural reforms
and government operations. Zimbabwe Independent
0 comments:
Post a Comment