Gvt must think outside the box on payments

Hebert Zharare Deputy News Editor
Zimbabwe faces extraordinary challenges that require national economic managers to think outside the box if home-grown viable solutions are to be hammered.

The country finds itself in a delicate situation where it uses multi-currencies that the Reserve Bank of Zimbabwe is unable to control, which is one of the many reasons why there is a serious liquidity challenge. Some service providers insist on cash payments no matter how huge the transactions are.

The central bank cannot tinker around the values of these currencies, leaving the country with limited options and companies and individuals in a quandary.

The few US dollars, South African Rands and Botswana Pulas in the country are a product of desperate efforts by financial institutions and a few companies that are still exporting products.

Faced with such a precarious situation, companies such as those in the agriculture input manufacturing business, banks and individuals exposed to Government business and transact in huge amounts, are calling for monetary authorities to consider alternative forms of payment.

One such viable option that has potential to become a home-grown solution to the liquidity crunch, is for the monetary authorities to legalise the use of Treasury Bills issued by the State and Central Bank as a form of payment.

Treasury Bills are discounted short-term debt securities issued by Governments or Central Banks with maturities of up to one year and believe you me Government always pays back creditors.

For a government, the issue of Treasury Bills is a way to cover short-term state budget deficits like raising money to pay farmers or import essential products, whereas for the central bank it is a way to control banking sector liquidity.

Moreover, bills represent an important instrument of governmental fiscal policy and the central bank’s monetary policy.

That is why the size of bills issues also depends on where an economy stands in the economic cycle.

For instance, at a time of recession, a government will try, in accord with the central bank’s monetary policy, to stimulate economic growth by Treasury Bill issues designed to finance various development programmes.

It is against this backdrop that we have gathered that some creditors and depositors of banks placed under liquidation, want Treasury Bills to be allowed to circulate on the market as a form of payment.

There are a number of borrowers who want to repay their loans but they cannot raise cash because of the national liquidity crisis and market, but due to their exposure to Government, they can raise the bills.

Information on the market confirms that some of the borrowers who are exposed to Government business can raise Treasury Bills, but it is not clear whether the liquidator of banks placed under liquidation are going to accept them as a form of loan repayment or not.

The depositors and creditors want this clarified by Mr John Chikura of the Depositor Protection Corporation (DPC) because the Treasury Bills are a form of assets.

Two months ago the Reserve Bank Debt Assumption Act became law and under this law the Government is going to issue out about $ 1, 3 billion worth of Treasury bills as a form of settlement to creditors of the Central Bank.

The central bank raided many bank accounts of individuals, banks and companies during the height of economic crisis and used the money to pay for essential imports such as farming inputs, implements among others.

The issuing out of the $1.3 billion in other words means creditors of RBZ are going to be paid in the form of Treasury Bills, without the discounting of the bills and the creditors including banks should accept such form of payment.

If the banks and other creditors of RBZ can accept such form of payment, it is also expected that other players in the economy should also accept such bills as a form of payment.

Treasury Bills can be used as another form of payment by individuals and companies to settle loans.

In other words a borrower can now transfer Treasury Bills to the bank in full settlement of a loan and the bank in turn can transfer the Treasury Bills to a depositor as full settlement of the deposit, because the Treasury bills are divisible into smaller amounts and transferable electronically like money.

Thus the Treasury Bills can be paid to every creditor’s bank account just like money.

The creditor upon getting the Treasury Bill in his account, can either hold it until maturity and be paid by Government or he can transfer it also to another person as a payment for something or he can discount it for cash.

While holding the Treasury Bill to maturity, interest is earned on the Treasury Bill.

The subsequent transfer of the bill by the former depositor to another person as payment for something can also be done electronically between banks in the same way money is transferred.

However, if the former depositor decides to exchange the bill for cash before maturity, there will be a small discount on the amount.

The decision whether the creditor of a bank under liquidation can hold the Treasury Bill to maturity or transfer it to another person or discount it for cash should be done by the creditor of the bank. The liquidator should simply collect Treasury Bills as loan repayments and pass them to the creditors as settlement of creditors.

If the liquidator were to do this, he will collect more loans, because a number of the borrowers are in default because they cannot raise cash given the national liquidity crisis but they can raise the bills.

Sections 276 (2) and 284 (1) of the Companies Act permit liquidators to accept and distribute assets of the company to creditors including Treasury bills, movable and immovable property or any assets.

Reads Section 276 (2); “The liquidator shall proceed forthwith to recover and reduce into possession all the assets and property of the company, movable or immovable.”

Reads Section 284 of the Companies Act; “(1) Immediately after the confirmation of any account the liquidator shall proceed to distribute the assets in accordance therewith or to collect from the creditors assets liable to distribute thereunder the amounts of which they may be liable respectively.

Cash is not the only form of asset.

If the law permits the liquidator to accept any assets and distribute them to creditors, it can also accept Treasury Bills as a form of assets.

In fact Treasury Bills are better assets that immovable property because they can easily be divisible and transferable.

All creditors including the liquidator’s fees can also be paid in the form of Treasury Bills, in the process, easing the liquidity challenge.

If Treasury Bills are accepted as a form of payment, bigger institutions such as local authorities, Zimbabwe Revenue Authority and Zesa Holdings, would be the major beneficiaries and firms and individuals will clear what they owe these institutions.