FIRST REPORT OF THE PUBLIC ACCOUNTS COMMITTEE ON COMPLIANCE ISSUES FOR THE RESERVE BANK OF ZIMBABWE
HON. BITI: I move the motion standing in my name and on behalf of the Public Accounts Committee, that this House adopts the First Report of the Public Accounts Committee on Compliance Issues for the Reserve Bank of Zimbabwe.
HON. NDUNA: I second.
HON. BITI: This is the Second Report of the Public Accounts Committee on Compliance Issues involving the Reserve Bank of Zimbabwe. Section 119 of the Constitution, gives Parliament power to ensure that provisions of the Constitution are “upheld and that the State and all institutions and agencies of Government at every level act constitutionally and in the national interest.”
Section 299 of the Constitution confers the Public Accounts Committee with unlimited oversight powers over all State revenues and expenditure. It states that
- “Parliament must monitor and oversee expenditure by the State and all Commissions and institutions and agencies of Government at every level, including statutory bodies, government-controlled entities, provincial and metropolitan councils and local authorities…”
Accordingly, Parliament in general and the Public Accounts Committee, in particular, has the responsibility to ensure accountability and openness of the State through oversight of activities of the Executive and its auxiliary bodies.
The Public Accounts Committee is constituted in terms of Standing Order No. 16 of the Standing Rules and Orders of the National Assembly which reads:
“There must be a Committee on Public Accounts, for the examination of the sums granted by Parliament to meet the public expenditure and of such other accounts laid before Parliament as the committee may see fit.”
In doing its work, not only does the Committee measure compliance arising from reports of the Auditor General or other reports but the Committee also looks at constitutional and statutory compliance in so far as it relates to financial and audit matters.
In short, the Committee exercises its oversight function by examining both the technical accounting issues as identified in the audit report as well as technical legal compliance issues.
Background to the Inquiry
In performing its duties, the PAC relies mainly on the annual statutory reports compiled by the Auditor General and its findings on the level of implementation of recommendations by various entities audited.
The Committee in its work also relies on various specialised audits including Forensic and Value for Money audits done by the Auditor General at the special instance and request of Cabinet, particular Minister or any other entity.
In carrying out its work, the Committee is guided by Section 119 of the Constitution.
Ultimately, the purpose of the Public Accounts Committee is to promote democratic and good governance in Zimbabwe as propagated by the Constitution.
Significance of the Reserve Bank Of Zimbabwe
Mr. Speaker Sir, the Reserve Bank of Zimbabwe (RBZ) is the country’s apex bank which plays a critical role in the economy of the country. The RBZ’s key functions include; implementing and executing the country’s monetary policy, management of the country’s payment system and currency and the regulation of the banking sector. The RBZ also plays the central role of being the banker to the State, a function which involves making payments on behalf of Government and in a limited way, lending to Government. The Bank also plays a critical role as a lender of last resort in addition to managing and regulating the use of foreign currency in the country.
Our first report to Parliament which was adopted by Parliament on 30th July 2019 focussed on compliance issues relating to the Ministry of Finance and Economic Development. It was in the process of gathering evidence central to our report that certain issues emerged, Hon. Speaker Sir, which made it necessary and essential to interrogate the RBZ on its own. These issues included among other issues the Government Overdraft with the Central Bank and Debt Contraction by the Central Bank itself, quasi-fiscal activities by the Central Bank among other things.
The Committee studied the reports of the Auditor-General for the years 2014 to 2017 in so far as they related to the Appropriation Account of the Ministry of Finance and Economic Development. From the observations, a few of the issues raised in this report required clarification by the Central Bank. The Committee, therefore, invited the Central Bank to give evidence before it.
The Committee was honoured to receive the RBZ Governor, Dr J. P. Mangundya and his team which included the bank’s Counsel, Mr. Webster Madeira, the Director of ZAMCO, Dr Kanhai, and the Director of Finance, Ms Mushowe on 4th and 11th March 2019.
Various issues were comprehensively discussed during the said meetings. These included the following issues
(i) The RBZ Debt;
(iii) The RBZ’s engagement in quasi-fiscal activities;
(iv) Bond notes and RTGS balances;
(v) Foreign Currency and Export Surrender requirements; and
(vi) Securitisation of minerals
Bank’s Refusal to Supply Certain Information
As is normal in the work of every Parliamentary Committee, the Committee requested various information and documentation. The Bank through its Counsel, Mr. Madeira, undertook to provide a legal opinion on quasi-fiscal activities as well as the legality of the Bank’s export surrender requirements and the legality of the Bank’s use of the country’s minerals as securities for loans obtained by it. This process is called securitisation. This opinion was never supplied to the Committee.
The Bank also undertook to provide full details of all its activities and transactions relating to ZAMCO. This included full details and disaggregation by Bank of each loan portfolio taken over by ZAMCO, the names of the individual defaulters, the amounts thereof, and the security provided.
This information, in oral evidence, the RBZ Governor undertook to provide without delay. In fact, in the second meeting held on 11th of March 2019, the Governor explained Dr, Kanhai’s absence as that he was compiling the information that we had requested. The Committee was shocked when it received a letter dated 18th March 2019, in which the Bank claimed that it could not disclose the disaggregated information, Hon. Speaker, pertaining to the RBZ, the portfolio taken over, the amount lent and the security on the basis that:
(i) Protected by banker-client privilege existing between ZAMCO and the individual defaulter whose debt was being taken over.
(ii) That the RBZ was covered and protected by section 60 of the RBZ Act as well as Section 12 (2) of the Privileges, Immunities, Powers of Parliament Act.
We strongly disagreed with the Bank’s position. We maintained in our response dated 12th April 2019, that we had the right to scrutinise any public institution before us as a result of Sections 117 and 119 of the Constitution of Zimbabwe. We also reinstated our right of scrutiny of all revenues in terms of section 299 of the Constitution. We are pleased that Counsel to Parliament agreed with our position because we sought the opinion of the lawyer to Parliament.
We insisted and communicated this to the bank through our letter dated 21st May 2019. We, therefore, want to restate as the Public Accounts Committee and as Parliament, that Parliament has unlimited sovereignty and oversight powers and the RBZ, like any other body that receives public funds cannot refuse scrutiny on the basis of some technical or fictitious legal arguments.
Mr. Speaker Sir, I want to state that after this report has been written, we subsequently received the information which we were requesting namely, information on ZAMCO. However, this report does not cover ZAMCO fully; we will come back to it once we have scrutinised that information as a Committee.
Mr. Speaker Sir, I now want to summarise the key findings of the Committee. After going through the evidence, the Committee’s major findings was that the Reserve Bank of Zimbabwe was non-compliant to a number of legal requirements. The following are the Committee’s findings:
- Government Debt
Having received oral evidence from the Governor of the Reserve Bank, the Committee learnt that the bank owed a total of US$8.1 billion as of March 2019, comprising the following;
|Treasury Bills used to acquire Non Performing Loans NPLs||US$ 1.2 billion|
|Savings Bonds (Money mopped from the system)||US$ 2.8 billion|
|PTA and Afrexim Bank||US$ 0.9 billion|
|Money Borrowed to support Government Overdraft||US$ 3.2 billion|
|Total||US$ 8.1 billion|
I want to say that this is correct as at the end of March 2019. We know that they now owe the Afrexim Bank more than US$1 billion. This is a huge figure Hon. Speaker, when you consider that the country’s external sovereign debt is around US$9 billion. The country’s domestic debt, Treasury Bills (TBs) is $9 billion. So, if the Central Bank is going to acquire $8.1 billion outside this Parliament, there is something wrong Hon. Speaker. So, we give a full breakdown of this debt Hon. Speaker in Paragraph 5.11 of our report.
The Committee also noted that the RBZ as of 11th March 2019 was owed US$ 2.99 billion as an overdraft by the Central Government. So, the Government itself also owes the Central Bank. These are the Committee’s findings Hon. Speaker on the RBZ debt.
Committee Observations and Recommendations
The Committee is gravely concerned with the huge footprint of the RBZ in the economy. The Central Bank is not Treasury; it is not the fiscus or the Ministry of Finance. Therefore, it cannot compete with the Central Government in accruing debt and in funding operations as we will show below.
The Committee is concerned by multiple sources of debt contraction in the country which do so oblivious to the requirements of the Constitution, the Public Debt Management Act and the Public Finance Management Act. So our finding Hon. Speaker is that; only the Minister of Finance should be the sole debt contraction agency in the country because it is bound by the Public Debt Management Act, the Public Finance Management Act and the Constitution.
The Committee was also deeply concerned with the RBZ’s lack of acknowledgement of Zimbabwe’s laws and that it was bound by the same. We found it deeply amazing that the Central Bank did not recognise that it could not contract any public debt without the approval of Parliament. Mr. Speaker, we have just spent the better half of this afternoon approving an agreement in terms of Section 327 of the Constitution of Zimbabwe. All this debt that the RBZ has been contracting has been done outside the provisions of Section 327 of the Constitution of Zimbabwe. However, what amazes us Hon. Speaker, was the feeling by the Reserve Bank of Zimbabwe that it was not bound by the Constitution and it had no obligation to come to Parliament to seek approval for contracting these foreign loans, particularly loans contracted with the African Import and Export Bank.
The Committee was also concerned about the clear lack of coordination between the Central Bank in its debt contraction activities and the Ministry of Finance and Economic Development. This was particularly self-evident on the question of Treasury Bills where it was evident that Treasury Bills were being issued by both the Ministry of Finance and Economic Development and the Central Bank without coordination. On this issue Hon. Speaker Sir, we found that the two departments were not talking to each other. So, the figure for the debt by the Reserve Bank in its books is not mentioned or acknowledged in the Central Government’s books. Equally, the figure for Treasury Bills; the Ministry of Finance and Economic Development has one figure and the Central Bank has another figure. Our submission Hon. Speaker is that everything should be done centrally through the Ministry of Finance.
Mr. Speaker, I now want to come to ZAMCO and the ZAMCO Debt. The Committee noted that Treasury Bills were issued to purchase non-performing loans from banks in the total sum at the time of US$ 1.2 billion. The TBs are a levy on the Consolidated Revenue Fund and will have to be paid and honoured by the taxpayers of Zimbabwe. There was, therefore, a need to provide for these borrowings in an appropriation account to be approved by Parliament in terms of section 305 of the Constitution of Zimbabwe; this did not happen in an Appropriation Act.
Treasury Bills became the major source of the budget deficit accrued between 2014 and 2018. They represent a major bypassing of Parliament. TBs also became the major source of the country’s domestic debt now standing at US$ 9 billion, creating a situation where for the first time in the country’s history, domestic debt now exceeds external sovereign debt.
TBs should not be issued outside Parliament and without approval in an Appropriation Act. Hon. Speaker, this is very important. More than US$9 billion worth of Treasury Bills have been issued more than any budget passed by this Parliament since 2014. It makes the business of Parliament particularly what we are going to do on Thursday, of approving a budget when a parallel budget unapproved by Parliament is going to be run through the issuance of Treasury Bills Hon. Speaker Sir.
We demand with the approval of this House that Bills of Condonation should be presented to Parliament together with the appropriate supplementary budget by 31st December 2019. We recommend that the Public Finance Management Act (PFMA) must be strengthened so that the role of the Ministry of Finance as the sole authority to issue TBs is cemented and protected. So, Hon. Speaker, we are recommending that the PFMA should be made clearer that only the Ministry of Finance and not the Reserve Bank can issue TBs.
We also recommend that only the Ministry of Finance should be the sole debt contracting agent in the country as we have recommended in our previous report.
The Committee gathered that the Reserve Bank of Zimbabwe contracted external debt amounting to US$ 985 million as of that time Hon. Speaker, March 2019. This was constituted by the following; US$ 641 million borrowed from Afrexim Bank, US$152 million from the PTA Bank, US$ 25 million from Banco de Mozambique, the Bank of Mozambique, US$ 9 million from the PTA Insurance Corporation, US$ 15 million from the African Development Bank and US$1.9 million from a mining company in South Africa among others, as shown in the table below:
|Afrexim Bank||US$ 641 million|
|PTA Bank||US$ 152 million|
|Banco de Mozambique||US$ 25 million|
|PTA Insurance Corporation||US$ 9 million|
|African Development Bank||US$ 15 million|
|Premier African Mint||US$ 1.9 million|
|Others||US $141.1 million|
|Total||US $ 985 million|
These loans were contracted at rates of between 5-6 % and for periods ranging from three to five years.
5.3.2 Contrary to the advice of the Central Bank, the Committee was not furnished with any evidence to show that the RBZ got consent from the Minister of Finance and Economic Development and this is important because the Reserve Bank kept on saying, we were authorised by the Ministry of Finance and indeed the Reserve Bank Act allows the Reserve Bank to act as an agent of Government but that has to be done in writing specifically. We requested for letters from the Reserve Bank offered by the Ministry of Finance authorising the bank to borrow and we never got those letters.
5.3.3 Loan contraction by the Reserve Bank of Zimbabwe was in breach of Section 300 (3) and (4) of the Constitution which obliges the Minister of Finance and Economic Development to publish in the Gazette loans contracted and guarantees issued by Government within sixty days of their conclusion and to present to Parliament a report on loans raised.
5.3.4 In addition to that, the loans were contracted without the Minister of Finance and Economic Development seeking on behalf of the bank, Parliament’s approval as required by Section 327 of the Constitution.
5.3.5 The Governor’s contention that approval is sought by the Minister of Finance and Economic Development and not him was unacceptable to the Committee as the bank has an obligation to ensure that the law is complied with. The least expected of the Central Bank officials is to remind the Minister and ensure that the requirements of the law of the land are complied with.
22.214.171.124 All loans contracted without Parliament’s approval should be presented to the august House by 31st December 2019 and all future borrowing should be presented as dictated by the constitutional provisions.
126.96.36.199 All loans that were not gazetted as is required by the law, should be published in the Gazette by 31st December 2019
188.8.131.52 As a matter of urgency, all laws to do with public debt contraction should be aligned with the Constitution to create one centre of publication, in particular Section 7 (1) (n) and Section 23 of the Public Debt Management Act needs to be aligned to the Constitution and be amended to reflect the following:
(i) That no debt can be contracted without the approval of Parliament.
(ii) That the Ministry of Finance is the sole debt contracting office
5.4 Money mopped and converted into Savings Bonds and the money borrowed to lend the Central Bank
5.4.1 The RBZ borrowed a substantial amount of money, US$ 3.2 billion that was essentially to finance Government operations. The Committee notes that an expansionary fiscal policy forced the RBZ to actively enter that market to mobilise resources for and on behalf of Central Government.
5.4.2 The challenge with this process is that it was done outside Parliament and the amounts were well above those approved by Parliament in terms of Section 13 of the RBZ Act. The Committee put it to the Governor that he had the duty to ensure that the Government complied with its own budget and the limits provided by Parliament.
5.4.3 The RBZ was adamant that, of the US$3.2 billion that it converted into savings bonds, none of it came from people’s deposits in their bank accounts. The discussion that took place in the Committee was that the RBZ went and raided people’s accounts and took US$3.2 billion which was then used to support Government’s operations. The RBZ denied this and we make the following findings:
184.108.40.206 The Central Bank failed to act diligently in ensuring that the Central Bank complied with the budget approved by Parliament.
220.127.116.11 On the contrary, it appears that the RBZ aided and abated an expansionary fiscal policy which resulted in the huge budget deficits experienced from 2014.
18.104.22.168 The Committee also makes the finding contrary to the protestation by the RBZ that in fact, it mopped up deposits in bank accounts for onward lending to Central Government.
22.214.171.124 Our finding is based on the clear and uncontroverted
evidence that the relevant companies and organisations whose deposits were later on converted into savings bonds, in fact kept the same in banks and not in their safes, pillows or offices. What we are saying is that the money that these companies had which was later converted into savings bonds were in fact kept into savings accounts in banking institutions and not in people’s pillows or houses – that is the money that was mopped and then later converted into savings bonds resulting in the shortage of US$, resulting in the clear inevitable creation of the mirage currency called the RTGs dollar and subsequently the bond note.
Our recommendations are as follows;
126.96.36.199 By the 31st December 2019, the RBZ Act should be amended to ensure that the Central Bank sticks to its original core mandate of any Central Bank.
188.8.131.52 For the avoidance of doubt, the Committee recommends that
the mandate of the bank should solely be:
(i) Acting as a banker to the state.
(ii) Managing the monetary policy.
(iii) Managing the local currency.
(iv) Managing the exchange rate.
(v) Managing the national payment system.
(vi) Acting as lender of last resort.
Any other function that the bank has been doing outside these six key functions should be done by the Ministry of Finance and we cannot afford two competing Ministries of Finance – one in Central Avenue and the other one at 80 Samora Machel Avenue.
184.108.40.206 Through the Minister of Finance, the RBZ must report
twice a year on all monies it would have borrowed within that particular year and monies lent.
220.127.116.11 The RBZ must comply strictly with Section 49 of the RBZ
Act that its lending must be backed by 100% reserves.
5.5 Government’s overdraft facility with the Central Bank
5.5.1 The Committee gathered that Government had borrowed $2.99 billion from the Reserve Bank of Zimbabwe as at 31st December 2018. The Committee learnt that this money came from Reserve Bank savings bonds and not from depositors’ money in commercial banks. The bank’s asset savings were reported to be $3.2 billion and the tenure ranged between 2 and 5 years. The diagram below tabulates the State’s annual borrowings from the Central Bank from 2014 to 2018.
|Amount||$126 373 713||$278 761 815||$941 815 033||$1 369 355 198||$3 004 842 937|
5.5.2 An analysis by the Committee of all the amounts overdrawn by the State from the Central Bank and the revenues from the State clearly showS that the Reserve Bank of Zimbabwe was in breach of Section 11 (1) of the Reserve Bank of Zimbabwe Act which provides as follows:
“(1) The Bank shall not-
(a) Lend or advance moneys to, or directly buy, discount or rediscount bills, notes or other obligations from the State or any fund established by the State so that the amount outstanding at any time exceeds the equivalent of twenty percent of the previous year’s ordinary revenues of the State;
A 20% cap is put on the amounts that the state can borrow 20% of the previous year’s Government revenues. Mr. Speaker Sir, we found that throughout the period under review, the State borrowed above the 20% threshold. The table below illustrates the Committee’s finding:
So the levels of non-compliance are huge and unexplainable.
5.5.4 The Reserve Bank of Zimbabwe Act also provides that Government should repay the overdraft within twelve months after the end of the financial year in which it was made. The Committee established that Government was in default as it was not doing so.
The Committee was disturbed by the continuous breach of section 11 of the Act, and that the percentage of the overdraft grew significantly with each year.
5.5.5 Our biggest concern is that the Zimbabwean Central Bank is undercapitalised. It does not have resources of its own. As shown above, all the money it lent to the Government was mopped from the private sector, from people’s bank balances.
5.5.6. It is a fallacy to pretend that the Central Bank in its current position can lend to Government. This is just a licence of pushing the CB into embarking on creative means of resource mobilisation which includes interfering with bank deposit and export earnings.
18.104.22.168 The RBZ Act should be amended by 31st December 2019 to repeal section 11 (1) (b) and ensure the RBZ does not lend to the State under any circumstances.
22.214.171.124 Until the repeal of section 11(1) (b), the Reserve Bank of Zimbabwe should not allow Government’s overdraft with the Central Bank to exceed twenty percent of the previous year’s revenue as stipulated in the law.
126.96.36.199 Government must, before 31st December 2019 settle its obligations with the RBZ.
5.6 The Engagement of the RBZ in Quasi-Fiscal Activities.
5.6.1 The Reserve Bank of Zimbabwe Act was amended in 2010 to, among other things, prevent the Central Bank from engaging in quasi-fiscal activities. Furthermore, the Government, through the 2019 Budget Statement states that “all Reserve Bank quasi-fiscal activities, … are being discontinued” and that public expenditure would be confined to the budgetary framework approved by Parliament. The Committee sought an explanation from the Governor on the legal basis for payments of grain, fuel and electricity imports by the Central Bank.
5.6.2 The Governor defined quasi-fiscal activities as activities undertaken by the Central Bank or any other institutions on behalf of Government at below the market prices. He argued that as far as he was concerned, the bank had not been involved in any quasi-fiscal activities from 2014. His contention was that the Bank was providing foreign currency to fuel importers or millers at the market rates and therefore could not be referred to as quasi-fiscal activities. Mr. Speaker, it went so far as the Governor offering the Committee a retreat in Victoria Falls or anywhere so that we will be taught the meaning of quasi-fiscal activities. We want to go to Victoria Falls Hon. Speaker. He highlighted that it was the role of the Central Bank to manage foreign currency as this was the case in other countries such as Botswana, Nigeria and Angola.
5.6.3 Committee’s Observations
188.8.131.52 During the oral evidence session, there was a disagreement between the Committee and the RBZ Governor over the definition of quasi-fiscal activities (QFA). The Committee is concerned that the RBZ is slowly drifting back to the era of quasi-fiscal activities. QFA create contingent implicit liabilities which the government is expected to fulfil thereby mortgaging the nation’s future without proper approval and end up being funded by borrowings which leads to increased money supply.
184.108.40.206 The Committee noted that the RBZ through its Monetary Policy Statement of February 2019 continued with quasi-fiscal activities through its procurement of commodities that included, fuel, cooking oil, electricity, medicines and water chemicals. Procurement is the responsibility of the central government.
220.127.116.11 On analysing the Monthly Economic Reviews by the RBZ, the Committee noted that a very high proportion of imports (averaging 60%) per month, was classified as ‘other’ under the ‘Imports Classified by Harmonised Commodity Description and Code System’ tables as shown below for the months from November 2018 to May 2019;
18.104.22.168 The Committee is concerned by this unexplained high proportion of the foreign currency being channelled towards imports and would want to know the breakdown composition of what it entails.
5.6.4 Committee’s Recommendations:
22.214.171.124 The Reserve Bank of Zimbabwe must stop engaging in quasi-fiscal activities and focus on private sector growth to help economic recovery. The RBZ should stick to its core mandate of
(i) Acting as a banker to the state.
(ii) Managing the monetary policy.
(iii) Managing the local currency.
(iv) Managing the exchange rate.
(v) Managing the national payment system.
(vi) Acting as lender of last resort.
126.96.36.199 The RBZ Act should be strengthened to proscribe all quasi-fiscal activities.
188.8.131.52 To prevent the 9th Parliament from being saddled with another Debt Assumption Bill, the Minister of Finance and Economic Development should present to Parliament the full scope of quasi-fiscal activities.
5.7 Purchasing of non-performing loans by the Zimbabwe Asset Management
5.7.1 The Committee gathered that ZAMCO acquired 1160 non-performing loans (NPLs) with a value of $1.13 billion, over the period 2014 to 2018. The non-performing loans were bought through issuance of Treasury Bills worth about $ I billion. At the time of the enquiry, about 260 loans were reported to have been repaid leaving a balance of 882 loans outstanding.
5.7.2 The Committee’s finding was that the Reserve Bank had no legal basis to purchase the non-performing loans through issuance of Treasury Bills. The Committee submits that issuance of Treasury Bills is the remit of the Ministry of Finance and Economic Development.
5.7.3 It is also the Committee’s finding that the Reserve Bank of Zimbabwe through ZAMCO, had acquired the non-performing loans without Parliament’s approval. This was in breach of Section 327 (3) of the Constitution of Zimbabwe which provides that an agreement which is not an international treaty but which imposes fiscal obligations on Zimbabwe does not bind Zimbabwe until it has been approved by Parliament. So, $1 billion has been paid but the money is coming from Parliament and all we are saying is that anything spent by the State must be approved by Parliament through a budget such as the one which is going to be presented to us on Thursday.
5.7.4 The Reserve Bank of Zimbabwe submitted to the Committee that the assumption of non-performing loans was based on the willing buyer – willing seller concept. Secondly, a bank had to be willing to sell a loan as opposed to resolving it internally. Thirdly, the loan had to be secured by an asset or acceptable security.
5.7.5 Contrary to this evidence, it does not appear as if the debts were secured at all. If the loans had security like houses, factories and so forth, they would have been nonperforming anyway because banks would have been able to fall close on the securitized assets. So that means $1 billion has been spent on loan that are totally debt because there is nothing to securitize the same. This conclusion was reached for the simple reason that commercial and other banks owed money would have followed up on the security pledged by the borrowers rather that sell the non-performing loans to ZAMCO.
5.7.6 The Committee requested the Reserve Bank of Zimbabwe to submit information on ZAMCO relating to the list of beneficiaries of debt assumption, the banks involved, values of each loan, discount rates applicable, security pledged and the tenure of Treasury Bills. Despite several attempts and Counsel to Parliament’s legal opinion supporting the Committee’s position, the Bank has not complied. The Central Bank’s refusal to submit the information stems from their argument that the information requested is privileged as it is covered by bank/client confidentiality. The Committee strongly differs with this claim. The demand for information on ZAMCO is being pursued separately.
5.7.7 Committee’s Observations
184.108.40.206 Part of the challenges with ZAMCO is that there is no legal instrument or Act governing the RBZ’s Non-Performing Loans as like with other countries like Nigeria. In Nigeria, for instance, the Parliament passed the Nigerian Asset Management Act in respect of which Parliament approved the purchase of nonperforming loans from banks and then provided the necessary financial muscle for the central bank to do so under Governor Samido. This has not happened in our case. So, the bank is doing this outside any legal framework and hence some of the challenges that they are facing. The absence of a legal instrument makes the process opaque and subjective leaving too much discretion in the hands of RBZ officials.
220.127.116.11 The Ministry of Finance and Economic Development should present Non-Performing Loans assumed by ZAMCO before Parliament by 31 December 2019, for approval.
18.104.22.168 Parliament should issue summons to the RBZ compelling the Bank to comply with the lawful request for information on ZAMCO. (This has already been done two weeks after this report had been complied with).
22.214.171.124 An Act should be crafted to deal with the acquisition of Non-Performing Loans which is the best practice.
5.8 Security Provided for the Reserve Bank of Zimbabwe’s External Loans
5.8.1 The Committee gathered that external loans, in particular to the African Import/Export Bank contracted by the Reserve Bank of Zimbabwe were being secured by the country’s future gold sales. Evidence submitted was that Government was paying US$ 5 million per month as loan repayments. These payments were being made against the country’s monthly gold earnings of between US$ 15 million and US$ 16 million.
5.8.2 The Committee’s finding was that the Central Bank had no legal basis to assign export receivables to the repayment of loans without Parliament’s approval. Section 327 says these loans must be approved by Parliament at first instance. Contrary to the Governor and officials from the Bank that sections 7 (1) (n) and 49 of the Reserve Bank Act of Zimbabwe gives them the legal basis to do so, the Committee’s view is that all receipts from gold sales constitute revenue for the country, which should be legally appropriated by Parliament. It was also apparent that there was no limit set in terms of export receivables that could be used as security for the loans. We also came to the conclusion that there is no legal instrument in our country that authorises the RBZ or anyone else to mortgage the country’s minerals and to use them as security against any loan. We also noted that even in those countries like Angola which have securitized their minerals, in the case of Angola, this was a complicated process which requires a lot of forensic skills, which skills we do not have at the present moment.
126.96.36.199 The Minister of Finance and Economic Development should regularise the securitisation of export receivables as security for loans contracted by the Central Bank by presenting the arrangement for approval by Parliament not later than 31 December 2019.
188.8.131.52 In the absence of a legal instrument authorising securitization, the Minister of Finance and Economic Development must, by 31st December 2019, bring to Parliament a comprehensive report and strategy detailing Zimbabwe’s exit strategy and defection from all agreements where Zimbabwe’s minerals had been securitized.
5.9 Maintenance of Adequate Foreign Currency Reserves
5.9.1 Section 49 (2) (a) provides that “the Bank shall maintain sufficient reserves to cover one hundred per centum of its liabilities to the public, held in foreign currency accounts in any banking institution.”
5.9.2 The Committee’s finding was that since 2009 when the country adopted the multi-currency system, the Reserve Bank of Zimbabwe had never maintained foreign currency reserves to match the statutory requirements. At the time of receiving the oral evidence, the Committee established that the country had about US $500 million which constituted 3 to 4 weeks cover in reserves. This position is unacceptable as this leaves the country at great risk of being unable to meet its current account requirements or external obligations.
184.108.40.206 The Reserve Bank of Zimbabwe should by 31st December 2019 have built sufficient foreign currency reserves to a point where the reserves match the level legally provided for by the Act. Our export earnings this year are over US$5 billion and the RBZ through export surrender requirements is obtaining a huge chunk of this money. So meeting the reserve requirement required by Section 49 of the Reserve Bank Act should not be a problem at all.
5.10 Export Surrender Requirements
5.10.1 The Committee noted that the Central Bank was retaining export surrender requirements which varied from 20% to 80% depending on the commodity.
5.10.2 The Committee noted that at the time of surrender, the RBZ was using the exchange rate of US$1 to I bond, which has since changed with the various changes in multiple currency in particular Statutory Instruments 33 of 2019 and 142 of 2019.
5.10.3 The legal basis of the export surrender requirements according to the RBZ was the Exchange Control Act.
5.10.4 The Committee also noted that the export surrender requirements required that tobacco farmers had a short period of utilising their retained forex failure of which the RBZ would retain the amounts at the rate of 1.1.
5.10.5 It was the Committee’s finding that the legal basis of the RBZ retaining export proceeds was extremely tenuous.
5.10.6 The Exchange Control Act did not provide a clear and unambiguous legal basis for the RBZ to appropriate exporters’ foreign currency. In the absence of a clear legal exchange, Counsel to the RBZ, Mr Madeira, failed to provide a legal opinion justifying the requirements. The Committee felt that export surrender requirements were an unlawful appropriation of private property in breach of the provisions of Section 71 of the Constitution. Our strong view was that export surrender requirements are part of the country’s revenues and all the revenues are accounted to Parliament through the Consolidated Revenue Fund which is distributed by the Ministry of finance through the budget. Therefore all export earnings must come to Parliament through the budget presented by the Minister of Finance and not a parallel exercise of distribution outside Parliament and Public scrutiny as is being done by the RBZ at the moment.
5.10.7 The Committee also established that the monies that were being retained by the RBZ through surrender requirements were huge and ran into billions. The RBZ, at that time in March 2019 had the sole discretion of allocation of the expropriated forex.
5.10.8 It was the Committee’s view that any money received by any public entity must be appropriated through Parliament. Only Parliament through Section 365 of the Constitution should have the power to allocate the same. This means the Ministry of Finance and Economic Development will have the discretion to allocate the funds through the budget, subject to approval by Parliament.
5.10.9 As pointed out above, the RBZ quasi-fiscal activities are huge and are driven by this the export surrender requirement.
220.127.116.11 The RBZ must cease the export surrender requirements forthwith.
18.104.22.168 The RBZ must ensure that there is a free market of foreign exchange.
22.214.171.124 The exporters must follow the laws of the country and bank their proceeds locally.
126.96.36.199 The Ministry of Finance and Economic Development must source forex through traditional means which include the Income Tax Act, Capital Gains Tax, Value Added Tax and other revenue measures.
188.8.131.52 The Ministry of Finance and Economic Development must twice a year report to Parliament on foreign currency received and utilised which is implied in any event in Section 300 of the Constitution of Zimbabwe.
As a Committee, we note that the RBZ plays an important role in the economy; because of its importance, it must adhere to the strict provisions of the Constitution, the RBZ Act, the Public Finance Management Act, the Public Debt Management Act and other laws. This is important for the good governance of the country which is codified in Section 2 of the Constitution of Zimbabwe. We therefore trust that the authorities shall comply with the recommendations above and we, as Parliament shall ensure compliance so as to protect the Constitution and the resources of Zimbabwe. I so commend the report before this august House Hon. Speaker Sir.