TREASURY has started validating blocked funds, which the central bank last year estimated at over US$1,3 billion, that could not be repatriated due to shortage of foreign currency, for consolidation into national debt.
A recent update from the Treasury’s Debt Office puts the cumulative blocked funds figure at an estimated US$2,9 billion.
Reserve Bank of Zimbabwe (RBZ) governor Dr John Mangudya, said in an interview this week the legacy debts comprised in-country funds owed to foreigners after Zimbabwe changed its currency in 2019.
The process of changing the national currency conversion, which was undertaken as Zimbabwe’s US dollar liquidity woes mounted, was done in terms of statutory instrument (SI) 33 of 2019.
At that point all US dollar balances, the anchor currency under a multi-currency regime introduced in 2009, were converted to Zimbabwe dollars at a central bank prescribed exchange rate 1 to 1.
Zimbabwe operated a US dollar anchored multiple currency regime from 2009, after the local unit was decimated by inflation, until February 2019 when the new Government reintroduced a domestic currency.
In April last year, the RBZ governor said the apex bank had completed a validation exercise on the external funds and directed local holders of the debts to transfer the local currency equivalent to the bank.
The bank then said it would issue debt instruments to holders of the external funds or legacy foreign debts.
It was not immediately clear if the process is detached from the ongoing debt audit.
The blocked funds, cash flows generated in a country but cannot be repatriated due forex shortage or capital restrictions, entail funds that were generated in Zimbabwe between 2016 and 2019.
Dr Mangudya said the Government should be commended for taking the decision to expunge the debts as well as accepting the responsibility to repay funds in order to cleanse Zimbabwe’s credit risk profile.
A number of external investors, among them foreign airlines such as South African Airways and others like International Air Travel Association (IATA), could not transfer funds to their jurisdictions due to forex shortage in Zimbabwe.
SAA is on record saying it sought to repatriate about R350 million in ticket sales revenue that got trapped.
IATA said the funds are deemed blocked if they cannot be transferred for a period exceeding two months.
Responsibility to transfer the funds rested with local banks or firms that received products or services from foreign suppliers, but could not be done amid forex shortage, especially after the currency was changed.
Dr Mangudya said if the Government failed to resolve the issue this would have grave consequences for Zimbabwe such as damaging its credit profile and withdrawal of services or product supplies.
The central bank chief said if foreign partners were left stuck with a domestic currency that they cannot repatriate, the foreign business operations could be negatively impacted or worse, collapse.
For instance, Dr Mangudya said, Zimbabwe owes the World Bank about US$2,4 billion, former commercial white farmers US$3,4 billion for farm improvements, which the Government has assumed and will repay.