The proposed introduction of bond notes by the Zimbabwe Central Bank chief to solve the cash crunch and stimulate the economy has taken a new twist with some legal experts calling the move unconstitutional opening the possibility of a constitutional court showdown.
Reserve Bank of Zimbabwe governor John Mangudya said the notes will come in $2, $5, $10 and $20 denominations, and backed by $200 million from the African Export Import Bank (Afreximbank).
But Harare lawyer advocate Fadzayi Mahere says, “It is worth highlighting that the term “bond note” is not defined anywhere in the Reserve Bank Act or the Banking Act.
Mahare argues that the term bond note is an invention by the central bank chief and “it is fictitious money”.
Another legal expert and founder of TN Bank, Tawanda Nyambirai, says it might be premature to criticize Mangudya but he insists that legal provisions of the constitution must be followed.
“Because the bond notes have not yet been issued, the issue whether or not the Reserve Bank has acted illegally does not arise as yet. Correctly put, the issue is whether or not there is a legal framework or sufficient legal provisions for the bond notes to be issued lawfully. I respectfully submit that there is adequate legal provision for the bond notes to be issued lawfully."
Nyambirai says the RBZ Act does not itself deal with the issue of bond notes. But he notes that the Public Finance Management Act Chapter 22:19 does deal with the issue of bonds, or bond notes.
He also cites Section 54(3) of the Public Finance Management Act which "empowers the Minister of Finance to borrow money through the issue of bonds, stock, treasury bills, advances, or overdrafts."
It is this section that empowers the state to issue bonds and bond notes. A bond is defined in Section 2 of the Public Finance Management Act as, “a document issued in pursuance of Part VI acknowledging a debt and binding the state to pay a specified sum at a stated time or on special conditions, and includes a debenture or other form of certificate of indebtedness”
Nyambirai says, "I submit that a bond note falls squarely within the meaning of this definition of a bond.”
Mugabe Authority Needed Before Introducing Bond Notes
To be lawful ,Nyambirai says, the bond notes will have to pass some further tests. He says Section 52(1) requires the relevant minister to obtain the authority of the president: "I am sure it will not be too difficult for him to obtain this.
He notes, however, that section 52(2) provides that in any financial year, the total local borrowings (which a bond note will be) cannot exceed 30% “of the general revenues of Zimbabwe in the previous financial year” without the authority of a Resolution of the General Assembly.
General revenues of Zimbabwe include taxes, fees, and all receivables of the Consolidated Revenue Fund.
Nyambirai says the taxes collected by the Zimbabwe Revenue Authority for 2015 amounted to $3.5 billion.
He adds though that, "I would not know what other revenues were received into the Consolidated Revenue Fund. I have not had the time to look this up. 30% of $3.5 billion is $1.05 billion. At $200 million, when issued in full, the bond notes will be approximately 5.7% of the 2015 tax revenues. The government would certainly have borrowed some more money through the issue of Treasury Bills, and other instruments.
"The aggregate of those borrowings, including the $200 million proposed bond notes, must not exceed 30% of the 2015 General Revenues without a Resolution of the General Assembly approving such a borrowing."
Nyambirai says the minister has to obtain a written opinion from the Attorney General approving the legal aspects of the bond notes.
He says the bond notes must have a "redemption date, or special conditions for their redemption. They cannot be open ended like the bond coins were. I humbly submit that the proposed bond notes can be issued awfully if the above legal requirements are met."
Bond Notes and Public Debt
Constitutional law expert, Alex Magaisa, says the new constitution also empowers parliament to have an oversight role in government expenditure and the loan from Afrexim Bank might actually have been obtained in breach of Section 300 (3) of the Constitution in that the government failed to publish the details of the loan in the government gazette within 60 days of the agreement being concluded.
Magaisa argues that Parliament then has a role to ensure that the government keeps within those legal limits. In the event that the government wishes to exceed those limits, it must seek parliamentary approval.
Magaisa cites Section 300(1) which reads, “An Act of Parliament must set limits on - a. borrowing by state: b. the public debt: and c. debts and obligations whose payment or payment is guaranteed by the State; and those limits, must not be exceeded without the authority of the National Assembly."
He also cites Section 300(2) which requires the Act of Parliament to “prescribe terms and conditions under which the government may guarantee loans. This means, for example, the US$200 interbank loan facility provided last year by Afrexim Bank, purportedly to cover the liquidity crunch and guaranteed by the government, constitutes a guarantee that falls squarely within the 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 recovered by this definition."
Magaisa further notes that Section 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.” The finance minister is also expected when he presents the budget “to table in parliament a comprehensive statement of the public debt of Zimbabwe.”
Writing on his Facebook page, former education minister and senator in the government of national unity, David Coltart, who is also a lawyer, commended Magaisa for questioning the legality of the Afrexim Bank loan facility.
Coltart posed a key question, “The big question is - will our current crop of MPs be able to make an issue of this in Parliament? It seems clear that the Minister of Finance is already in breach of Section 300 (3) of the Constitution in that he has failed to publish details of the loan in the Gazette within 60 days of the agreement being concluded.”
Coltart also said, “The method of payment by government of the bonuses and the like are so secretive that we the public do not understand how it has been done. The payment of these extra amounts cannot have come from monthly revenue because we know that monthly receipts are hardly sufficient to cover government's monthly obligations, never mind a 13th cheque. We expect Minister Chinamasa to comply with Section 300 (3) of the Constitution immediately so that we the public can fully understand how these payments have been made.”
Zimbabwe abandoned its own currency seven years ago as inflation spiralled to over 89,7% sextillion percent, at least according to one economic analyst.