In what can only be described as throwing the cat amongst the pidgeons Cabinet made an about turn on the conversion of government contracts created prior to the February 22nd introduction of the RTGS dollar. At the time SI 32 and 33 of 2019 stated that all contract amounts noted in US dollars were to be converted to RTGS dollars at parity. You can read the explainer. Now the position is that those amounts are recorded in RTGS dollars using the interbank rate for conversion. This is limited to government contracts.
The previous arrangement had left clear winners and losers in the conversion as debtors were the clear winners while creditors lost out. A case was brought before the courts to address the matter but the high court judge presiding reserved judgement. Effectively upholding the law as it had been drafted. Now the government, which was a respondent in the High Court case via the Reserve Bank, has made a reversal on the conversion rate in respect to government contracts. The statement was made by the Minister of information and publicity Monica Mutsvangwa. Followed up by social media posts which were met with quite an outcry by many. Permanent Secretary in the Information Ministry Nick Mangwana made it clear that the decision was related to government contracts.
It boggles the mind as to why such a move would be made now? A full four months after the introduction of the RTGS dollar and conversion. This move in earnest throws the cat amongst the pigeons. There are many questions left here.
What it means
Allow me to explain what all this means with an illustrated example.
If a person had a government contract in which they owed US$500 on February 20, when the mid-term monetary policy became effective they would now owe ZWL$500. If for some reason best known to them the debtor did not pay that amount today they would now owe US$500 or it’s RTGS dollar equivalent of ZWL$2580 (using interbank rate close of 5.16 for May 29th 2019).
This was not made clear but where the contract for the $500 had monthly instalments of say $100 per month each instalment would need to be adjusted to the prevailing interbank rate on the day the payment was made. In theory at least.
Guidelines will hopefully be put forward that explain how to proceed with the new announcement. If the debtor in our earlier example had paid off the ZWL$500 on say February the 25th the creditor should be well with their rights to request a further ZWL$750 as that USD$500 would’ve been worth ZWL$1250 at the time. Or perhaps they would be entitled to request today’s RTGS dollar of the outstanding ZWL$750. Such guidance is likely to be contained in a statutory instrument which will also indicate how contracts are to be treated in light of this development.
While it would seem the goal of the government here was to treat the problem that has been caused by rapid devaluation of the RTGS dollar and its effect on the national budget. The blind side here is all the amounts owed to state-owned entities such as ZESA which is struggling to pay a US$80 million debt to Eskom that is blocking power imports while ZESA is owed large amounts from the US dollar era. Councils are also owed large amounts by residents and it is as yet unclear if these will be brought into the revision. We will be sure to offer an explanation when more information comes to light.