HARARE – Zimbabwe will settle over 10 years its US$3 billion blocked funds debt owed to foreign firms that provided services or products to Zimbabwean entities but were not paid, according to Finance and Economic Development Minister, Professor Mthuli Ncube.
About 600 companies are reportedly owed significant amounts, the highest exposure being US$484 million relating to CBZ Holdings, under the blocked funds debt to foreign suppliers.
The list entails companies in the banking, petroleum, aviation and general sectors of the economy. In terms of the law, the payments cover companies that had blocked funds as at February 2022, 2019.
Such entities must have submitted their claims to the central bank by April 2020 for validation and the Zimbabwe dollar equivalent of the blocked funds forming the basis of such claim.
The debt was a result of acute shortage of foreign currency in the troubled Southern African economy, which switched currency after a decade of dollarised currency regime, which ended in 2019.
Authorities resolved to assume the debt to foreign suppliers in 2019, as part of efforts to improve the country’s image as a creditworthy borrower in order to access loans or credit in the future.
As such, the Reserve Bank of Zimbabwe (RBZ) asked Zimbabwe’s financial institutions to tender details of the unrepatriated funds to the central bank on behalf of the clients on a one to one basis with the local currency.
This also followed the change of currency regime in February 2019 from the US dollar dominated multicurrency, which was reintroduced after a decade-long hiatus prompted by inflation.
While shortage of currency to repay foreign suppliers was the major cause of the debt pile up, the currency switch also made it impossible for local firms to raise liquidity to clear the loans.
Amid sustained Zimbabwe dollar volatility, the Southern African country recently gazetted legislation reintroducing a multicurrency regime that will run until, at least, 2025.
Mthuli told Parliament recently that authorities were close to completing an audit to determine the exact value of bonafide blocked funds that should be paid off.
Mthuli revealed the modalities for clearing the blocked funds during a question and answer session in Parliament, which preceded a request from the legislators on May 10, 2022, for ministerial responses on questions without notice that were not adequately covered.
These related to submissions of documents and addendum pertaining to the Global Settlement Deed for compensation of former commercial white farmers and the agreement for the $38 million the Government signed with the Dutch Government to compensate 11 farmers.
Further, Parliament requested details of the US$3,3 billion assumed by the State in the 2022 budget, including those whose blocked funds were also similarly acquired and to whom the funds were released as well as the issue of a list of ZAMCO loans acquired by the Government.
Harare North legislator, Norman Allan Markham, had demanded an explanation from the minister, which Parliamentarians had endorsed, giving details on the exact blocked funds debt and beneficiaries.
“The issue I have with the blocked funds, I have got the Veritas thing which states the numbers and it adds up to two point (something), but we approved in this House US$3,3 billion. So, there is a slight difference. I would like to know who (is owed) the blocked funds; we know how they were blocked.
“For example they were blocked by company A here, but who did they pay? We would like to know who they paid because US$3,3 billion is a huge sum of money and that is my reasoning,” Marham queried.
The Treasury chief indicated to the legislators that the final figure that will be eventually settled would be slightly lower that the amount the authorities had announced at the beginning.
“On the blocked funds, the list of the blocked funds is clear from the Finance Bill as to who we thought is eligible for this. What we did as a Ministry after Parliament approved that list, we went back to say we want to really audit all those loans to make sure that they truly qualify as what we would call blocked funds.
“So, if you find that what we eventually took over is slightly less than what we reported earlier, that would be the reason. I did not understand where he said who was paid? It is quite clear as to what company is owed what from that list because that is what you approved.
“Is he looking for a name, I am not clear because the way this would have worked or works is, the bank would have handed over the Zimbabwe dollars to the Central Bank on a 1 – 1 basis and expected USD, which USD the Central Bank was unable to release, hence it was classified as blocked funds.
“So it is clear that those names are the names that are seeking relief, unless I am misunderstanding Honourable Markham,” he said.
He, however, pointed out that the Treasury had tranched the loans according to the amount owed, a criteria that would determine when certain specific debt amount categories would be repaid.
For instance, approved funds below US$1 million are already being paid off by Treasury, US$1 million up to a certain range would be paid over three years while other large amounts would be cleared over 5 and 10 years periods.
“Payments have begun and signing of those payments. If you are owed a million and above within a certain range, you will be paid within a three-year period, beyond that five-year period and beyond that ten-year period.
“Beneficiaries have been issued with IOUs (I owe you documents) or bonds ,which will then be claimed on the Treasury. That is how we have structured the payments Mr. Speaker Sir.
“The audit is still ongoing, there is still a bit that is remaining; we will conclude it but we have already taken over some and we have started paying,” Minister Ncube said.
A number of local companies have come under unbearable funding pressures and serious viability threat as the unsettled foreign obligations have resulted in some suppliers of critical raw materials stopping supplies to Zimbabwe, demanding cash up front.
Confederation of Zimbabwe Industries President, Kurai Matsheza, is on record saying that due to the issue of the blocked funds, most foreign suppliers were now demanding payments upfront, as they had not been paid for earlier services or products. – Business Weekly