BY FIDELITY MHLANGA
FINANCE minister Mthuli Ncube says government has issued debt guarantees amounting to $24,2 billion and US$15,2 million to help firms ride out Covid-19 induced operational problems.
A government guarantee is an arrangement in which the State undertakes to payment of a debt or performance of an obligation in the event of a default by the primary creditor.
Last year treasury announced a $18 billion Covid-19 stimulus package, cutting across all productive sectors.
The package was meant to give firms access to critical liquidity after operations were affected by lockdowns.
During the lockdowns, firms still required to pay for expenses like rentals and electricity.
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The package was aimed at strengthening and expanding existing social safety nets and up-scaling investments into social and economic infrastructure, including recovery of assets destroyed by floods.
The $18 billion stimulus package was broken down as follows: agriculture support ($6,08 billion), working capital fund ($3,02 billion), mining sector fund ($1 billion), small to medium enterprises (SMEs) support fund ($500 million) and arts sector.
Industry could not raise the funding on its own, given the array of interventions that required attention under the pandemic.
Instead of injecting cash, authorities opted to issue government guarantees, Ncube said during the presentation of the 2022 national budget on Thursday.
“In 2020, government issued domestic guarantees, including to private companies under the Covid-19 Economic Recovery and Stimulus Package, amounting to 24,2 billion and US$15,2 million,” Ncube said.
The treasury boss said guarantees issued to Agribank, Silo Food Industries, the Infrastructure Development Bank of Zimbabwe and CBZ Agro Yield (winter wheat) were on track in terms of repayment.
However, guarantees issued to CBZ Agro Yield for winter and summer maize were facing challenges of repayments, which indicates a relatively high probability of being called up in 2022.
For Silo foods, of the $411 million total obligation inclusive of interest payments, $235,5 million has been repaid with the remaining balance of $175,7 million to be paid by end of November 2021.
He said IDBZ interest payments were on track, while capital repayments would be paid in 2022.
But government had to move in to assure banks that they would be paid after they had treated state guarantees extended under the stimulus package with caution.
The ZNCC said last year government’s late offer to banks had failed to convince financial institutions that bailing out firms would not push up their non-performing loans and drive them to another crisis.
It said instead of relying on banks, government could explore several options to bail out firms, including turning the Industrial Development Corporation (IDC) into a lender.
“The $18 billion stimulus package cannot be an affair between banks and private sector players alone,” the ZNCC said.
“The credit guarantee arrangement with the government is not offering enough comfort to banks to lend to the private sector. Government has to offer significant tax relief to businesses or set a fund for drawdown by businesses.”
Governments worldwide have announced and honoured a combined package of over US$5 trillion to keep firms running, with England undertaking to pay up to 80% of companies’ wage bills as firms stared multiple bankruptcies.
Uncertainties stemming out of a prolonged economic crisis forced Zimbabwe’s banks to pursue a cautious lending strategy.
The ZNCC suggested that government should recapitalises the IDC to the tune of US$100 million to bolster its capacity to intervene in industries.
After the transformation, the IDC would then operate along the lines of the Industrial Development Corporation in South Africa, which has been carrying out direct interventions in Zimbabwe, extending loans to vital institutions like Agribank.
“The IDC should be restructured to make it a development finance institution which supports industry than for it to remain an investment vehicle as it is now,” the ZNCC said in a paper presented to government, spelling out its expectations in the 2021 budget.