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Bond Notes and the law of public debt and accountability in Zimbabwe


Two legal colleagues, Fadzayi Mahere and Tawanda Nyambirai have provided some persuasive arguments challenging the legality of the Bond Notes the proposed introduction of which the Governor of the Reserve Bank of Zimbabwe the announced last week. This opinion adds to that legal discourse, but from a public finance management perspective. In particular, it considers the constitutional aspects of public debt and the accountability mechanisms that need to be put in place and followed.

A key feature of Zimbabwe’s constitution is the set of mechanisms for checks and balances in regard to the use of governmental power. When the new constitution was written, one of its key aspects was to ensure there were mechanisms to make the government more responsible in handling public finance and that there was accountability to the citizens, from whom all authority derives, a key principle that is repeated at least four times in the constitution.

The reason for creating these mechanisms was that a pattern had been observed over the years, where the state had shown a penchant for reckless over-spending and incurring huge debts and arrears. The moral argument was that it was important to ensure that this generation does not burden future generations by incurring too much debt. It was important to keep spending in check.

Chapter 17 of the constitution and role of Parliament

It is against this background that Chapter 17 on public finance was written into the constitution. Section 298 sets out the principles of public financial management. In this particular case, two of them, namely, s.298(1)(a) and (f) are important:

  • there must be transparency and accountability in financial matters;

  • public borrowing and all transactions involving the national debt must be carried out transparently and in the best interests of Zimbabwe.

In addition, section 299 vests Parliament with power to oversee government expenditure. It states as follows:

“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 …”

Thus Parliament has an important function in keeping public spending in check.

State borrowings and guarantees

However, it is section 300 that is the most critical in respect of state borrowings and guarantees. It provides for limits to state borrowings, which must be set out in an Act of Parliament. Parliament then has a role to ensure that the government keeps within those limits set by the law. In the event that the government wishes to exceed those limits, it must seek parliamentary approval. The exact wording of section 300(1) is as follows:

“An Act of Parliament must set limits on– a. borrowings by the State; b. the public debt; and c. debts and obligations whose payment or repayment is guaranteed by the State; and those limits must not be exceeded without the authority of the National Assembly”

The provision is broad enough to cover direct loans which the government may take, or guarantees that it makes in respect of loans or facilities taken by others. The provision covers all transactions or facilities in which the state is involved however disguised they might be to obscure their status as giving rise to public debt.

Section 300(2) also requires the Act of Parliament to “prescribe terms and conditions under which the Government may guarantee loans”. This means, for example, the $200 million inter-bank loan facility provided last year by Afrexim Bank, purportedly to cover the liquidity crunch and guaranteed by government, constitutes a guarantee that falls squarely within this definition. In fact, all facilities that have so far been provided by Afrexim Bank, including the latest one purportedly being used to back the proposed Bond Notes, are covered by this definition.

Additionally, to promote accountability, section 300 also requires the Finance Minister to publish the terms of any loan agreement or guarantee to be published in the government gazette. This must be done within 60 days of the conclusion of the loan or guarantee agreement. The exact wording of s. 300(3) is as follows:

“Within sixty days after the Government has concluded a loan agreement or guarantee, the Minister responsible for finance must cause its terms to be published in the Gazette”.

Further, s. 300(4) requires the Finance Minister to report to Parliament, “at least twice a year” on the performance of loans raised by the State and loans guaranteed by the State”. When he presents the budget he is also required “to table in Parliament a comprehensive statement of the public debt of Zimbabwe”.

This set of provisions is designed to promote transparency and accountability on state borrowings and Parliament has a critical role in ensuring that these principles are upheld. Now people might say Parliament which is dominated by the party in government is pretty useless. It may indeed be weak, but the critical question is whether government itself is adhering to these constitutional provisions.

In particular, citizens ought to ask if the government has complied with the constitution to enact an Act of Parliament which does precisely what is required under Chapter 17 of the constitution. There are other critical questions:

Has the Public Finance Management Act set limits on state borrowings as required by s. 300(1)?

Has the government kept within those limits set by law?

If it has exceeded the limits, has it sought parliament’s approval as required by s. 300(1)?

Does the Act set the terms and conditions under which loans must be guaranteed as required by s. 300(2)?

Has the Finance Minister published within 60 days of their conclusion, the terms of the loans and guarantees that the government has entered into, with Afrexim Bank and other lenders since 2013?

Has the Finance Minister reported t Parliament, at least twice a year, on the performance of those loans and guarantees as required by s. 300(4)

Has he tabled a “comprehensive statement of the public debt of Zimbabwe” as required by s. 300(4)?

All these are critical questions awaiting answers from government, particularly as it seems clear that it continues to take loans or issue guarantees, further adding to the huge state debt and arrears estimated at nearly $10 billion. It appears the state took a $100 million facility from Afrexim Bank in 2014, a further $200m facility in 2015 and now, the latest being a further $200m facility to back the Bond Notes. There is also the $50 million facility used to back the Bond Coins in 2014. If these figures are wrong, it is because there is no clarity as required by law. Just how much has the government borrowed or guaranteed from Afrexim Bank is a question that can very easily be answered by the authorities.

What can citizens do to help enforce the constitution, or at least get answers?

Firstly, the reason citizens elect representatives to Parliament is so that they make representations on their behalf. This is an opportunity to ask your MP for answers. Send them these questions: they ought to know if these things have been done. If they don’t know, they are not doing their job. They are not doing what you elected them to do. They have the power to hold government accountable and they should be using it.

Second, you as a citizen can take direct action to Parliament. Most citizens and residents of Zimbabwe may not be aware that section 149 of the Constitution gives them the power to petition Parliament on any issue. It states as follows:

“Every citizen and permanent resident of Zimbabwe has a right to petition Parliament to consider any matter within its authority, including the enactment, amendment or repeal of legislation”.

The issue of public debt and accountability is plainly a matter within Parliament’s authority. The enactment of legislation as required by Chapter 17 of the constitution is clearly a matter within Parliament’s authority. This means any citizen can launch a petition to Parliament, demanding answers on these issues raised in this article. The power is in citizens’ hands – it’s time to make use of it.

Finally, citizens can demand answers from government directly. Freedom of expression, guaranteed by the constitution’s Declaration of Right, provides that facility.



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