Thursday, 05 April 2012 10:12
GOVERNMENT is considering a cocktail of measures to tackle staggering
inter-parastatal debts amounting to US$600 million by directing Treasury to
deduct arrears from the individual companies’ 2012 budget allocations.
Should this proposal be endorsed by cabinet, Treasury would be empowered to
address inter-parastatal debts by deducting money which one parastatal owes
another from its budget allocation.
Currently all budget allocations are deposited into each parastatal’s
account, leaving them to offset their individual debts but because of the
high defaulting rate, some entities are now technically insolvent.
Among the entities which are bankrupt or battling to stay afloat are Air
Zimbabwe (AirZim), National Railways of Zimbabwe (NRZ), mobile operator
NetOne, fixed line operator TelOne, Cold Storage Company (CSC), Grain
Marketing Board (GMB), Zupco and Zesa.
There are about 82 state-owned entities, most of which are struggling or
The inter-parastatal debt problem has a contagion effect on other
state-owned companies and the country’s fragile recovery after a decade of
economic meltdown. Without parastatal reforms and efficiency, the economy
will continue to suffer.
The choking debts were accumulated due to a myriad of poor policies, among
them government interference, mismanagement and failure to adapt to the new
multi-currency monetary regime.
Government was warned earlier this year that the huge inter-parastatal debt
level was generating negative spillover effects on the whole economy
dominated by the state enterprises which used to be the locomotives of
growth and employment creation.
According to a comprehensive 13-page document dated February 2012, outlining
the extent of the problem, the inter-parastatal debt stood at US$458 639 932
as at September 31, 2011. During this period, various ministries and
government departments owed parastatals a staggering US$107 million.
The report assesses the effects of the performance of the state enterprises
and proposes recommendations to the Council of Ministers and cabinet on how
to deal with the issue.
The document proposes recommendations that are expected to form the basis of
the envisaged comprehensive and stakeholder-driven Inter-Parastatal Debt
The document further recommends that cabinet issues a directive to
ministries and departments to pay off their debts immediately. It also wants
cabinet to instruct Treasury to pay directly to the owed state enterprises
by deducting the money from the ministries and departments’ 2012 budget
State Enterprises minister Gorden Moyo (pictured left) confirmed government
was discussing how parastatals could liquidate their debts to make them
attractive to investors during the government’s privatisation drive.
Privatisation of parastatals has been partly stalled by their debt profile
and general state of affairs.
“We are currently discussing on the strategy to find a method of settling
the debts between and among the parastatals and other outside creditors,”
Moyo did not go into details about the strategies his ministry would adopt
to resolve the debt crisis in which most parastatals find themselves in.
However, the document claims the parastatals debt problem was mainly due to
customers’ failure to pay, weak debt-recovery mechanisms, failure to comply
with agreed payment schedules and decade-long adverse macroeconomic
conditions until 2009. It says price controls before 2009 made it difficult
for parastatals to make payments to suppliers.
The document also lists the introduction of multicurrency without any
recapitalisation from the shareholder, non-compliance to good corporate
governance, imprudent policies and weak internal control measures and
government directives as some of the major challenges affecting parastatal
It indicates the transition to the multicurrency system eroded parastatals’
bank balances that could have been used to make payments to suppliers.
The debt situation has also affected the 10 parastatals which the coalition
government has earmarked for privatisation since its formation in February
2009. The 10 companies include Air Zimbabwe, NetOne, TelOne, POSB, GMB, CSC,
Agribank, Zesa, NRZ and Ziscosteel. Not much progress has been made to
privatise these entities, except for Ziscosteel whose deal is at an advanced
stage albeit still uncertain.
These 10 companies have a combined debt of US$32 million among themselves.
AirZim and NRZ owe other parastatals US$51, 9 million and US$26, 4 million
The briefing paper proposes possible strategies that include direct payment
of debts by Treasury to owed companies, debt service/product swap, debt
off-setting, phased debt retirement, moral suasion, disconnect/non-supply,
government taking over the debts and development of a secondary market for
Debt service/ product swap refers to the parastatals paying each other by
providing service to each other for free to pay off debts. For example, this
arrangement may see TelOne giving Zesa free telephone services in exchange
for electricity bills.
The creation of a secondary market for debt would see the government create
tradable instruments (bonds) that would have a specified interest and
redemption date to raise capital to retire the current debts.
Some parastatals like Zinwa, NetOne, TelOne and ZETDC (Zesa) have adopted
the disconnecting debt collection strategy and cutting supply to non-paying
state owned enterprises.
However, according to the paper the strategy has its own weaknesses, among
them the potential to send the indebted companies going into liquidation.
“This debt recovery strategy has worked positively in some cases with the
defaulting parastatals making immediate plans to settle their debts,” the
paper says, “This option is however detrimental to the operations of
state-owned enterprises whose supplies are disconnected.”
The white-paper observes most of these state-owned enterprises failing to
pay for utilities are in dire financial problems and disconnections will not
make them settle these debts, but will further negatively affect their
operations and probability to default on more obligations and, in the worst
case, be forced to wind up operations.
Most of the parastatals have experienced severe capacity utilisation
challenges, lack of capitalisation and trying to adjust to the new
dollarisation era. It has become very difficult for the companies to restore
viability and settle their debts.
The report warns: “Given the current financial positions of these two
entities (AirZim and NRZ), it is unlikely that they will be able to settle
their debts in the foreseeable future.”
The government has taken over AirZim’s US$140 million debt and ring-fenced
it so as to give the proposed new state airline a clean slate to start from.
The inter-parastatal debt and the contagion pose a serious threat to