Govt. to settle tobacco retention debt

Government has issued about $30 million worth of Treasury
Bills of between two to five years to local banks to offset
outstanding amounts owing to tobacco farmers under the
Reserve Bank of Zimbabwe Tobacco Retention Scheme. The
TBs were issued to Agribank, NMB, Metbank, Allied Bank,
Ecobank, MBCA, Barclays, Stanbic, Stanchart, ZB, FBC and
CBZ for the amounts.
This was after the completion of the validation and
reconciliation exercise on the figures that had been
submitted by the banks. The TBs are half yearly coupons
with a prescribed asset and tax exemption status at an
interest rate of 2 percent. They can be used as securities on
the interbank market.
The RBZ during former governor Dr Gideon Gono days
introduced the tobacco retention scheme as a carrot and
stick export incentive which enabled the country to raise
foreign currency. Tobacco growers were obliged to
participate in the scheme but they ended up being owed
sums of money by the central bank.
In the first quarter, Treasury issued $103 million worth of
the bills to deal with the RBZ obligations. Of the TBs, CBZ
took up $61 million towards FCA balances and $1,6 million
towards tobacco retentions.
Stanbic Bank $28 million on FCA balances and $719 401 for
tobacco retention, while Ecobank had $2,34 million towards
FCA balances and $327 499 for tobacco balances.
Agribank $5,6 million on tobacco, 297 161 for FCA
balances. Allied Bank purchased $811 514 towards FCA
balances and $906 878 towards tobacco retentions.
BancABC snapped up $862 103 towards FCA balances. FBC
Bank bought $324 774 for FCA balances and $810 025 for
tobacco retentions balances while Metbank picked $11 348
for FCA balances and $72 617 for tobacco balances.
The additional paper is expected to extinguish this
component of the RBZ debt.
Government has already communicated with the Zimbabwe
Tobacco Association on its commitment to extinguish the
debt. In a July 16, 2014 letter to the association seen by
The Herald Business, the Finance ministry urged the owed
tobacco farmers to liaise with their respective banks on
when they can expect to start receiving their money.
Treasury continues to turn to TBs to raise funding as the
fiscal space remains constrained. Sources within the
ministry told The Herald Business that Government has to
date raised in excess of $200 million in TBs while a similar
amount will be raised by year end.
Bloomberg quoting sources reported that government also
raised $2 million last week from selling 180-day Treasury
Bills with an interest rate of 9,5 percent via private
placements to banks and pension funds. Zimbabwe has
raised $8,5 million this month compared with $32 million in
June.
Analysts have warned Government against "indiscriminate"
use of Treasury Bills to fund recurrent expenditure as this
could crowd out the private sector from the limited liquidity
available in the market.
Confederation of Zimbabwe Industries president Mr Charles
Msipa recently said although industry welcomed the
clearing of FCA balances through TBs by the Reserve Bank
of Zimbabwe, the federation was concerned that excessive
use of the instruments could force the private sector out.
"There is so much capital available in the country so
typically if the Government gets into a deficit and gets into a
habit of relying on that liquidity to finance the deficit it
means that there is less money available to the other
players in the productive sector for lending," said Mr Msipa.