Just 3 years ago the government bankrolled the central bank by taking over its $1,4 billion debt in order to recapitalize the bank and resume its function on a clean slate. To facilitate this, the government in turn borrowed from the domestic market through Treasury Bills (TBs) which are short-term negotiable instruments. At that time the analysts warned that the government had no capacity to assume the debt as the country was (and still is) already overburdened with foreign debt.
With how large the debt it was assuming and the backlash it caused with analysts one could have been led to think that the government exercised due diligence before taking over the debt but apparently it didn’t. According to a report by The Herald the government is going to hire a consultant to recalculate the interest of the TBs and see if it overpaid its creditors. And any debtor who is deemed to have overcharged the government will have to revert back some money to the government and possibly face litigation. Speaking about the issue, the government stated;
The consultant shall be responsible for identifying creditors who could have overcharged and paid interest, recalculate the interest and enforce the recovery of such overpaid interest… This could be done through the application of law or technical financial expertise lenders may have violated in the process of charging interest to Government.
As this arrangement was done during the presidency of Robert Mugabe, which was marked by gross mismanagement, it stands to reason that little to no due diligence was practiced to study whether the government was accessing credit through TBs at fair rates. Whilst it’s commendable that the new government want to try to rectify the past mistakes, it may inadvertently scare away prospective lenders.
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