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Zimbabwe's Marginalized Central Bank Said Near Collapse as Creditors Press

Financial sector sources said the Reserve Bank of Zimbabwe faces bankruptcy as it cannot meet obligations to creditors including companies and NGOs whose funds it diverted in years past and never reimbursed.

Media reports and financial sector sources say the Reserve Bank of Zimbabwe faces bankruptcy as it cannot meet obligations to creditors who include private companies and non-governmental organizations whose funds it diverted under the former government of President Robert Mugabe, and never reimbursed.

The RBZ is said to be underfunded and to lack a substantial board of directors to manage an acute internal crisis, a situation that has also resulted in staggered monthly payments for its staff, sources close to the institution said.

The terms of RBZ board members Grace Chella, Clever Mumbengegwi, Mike Ndubiwa and Phineas Chiota ended in 2008 and they have not been replaced.

“The bank is bankrupt as its credit worthiness and credibility was once based on a false currency that was fueled by a system of political patronage,” Harare economist Rejoice Ngwenya told VOA.

Ngwenya said that with the replacement of the debased Zimbabwe dollar by a multiple-hard-currency monetary regimen, and with patronage curbed by the installation of a national unity government, "we are not surprised that our noble bank and lender of last resort is facing serious problems.”

He said private companies and NGOs reportedly taking the RBZ to court were free to sue the central bank, which diverted billions of U.S. dollars in funds from their accounts to fund quasi-fiscal activities over the past eight years.

The RBZ financed a broad range of government programs by printing money, including the Productive Sector Facility Scheme, the Basic Commodity Supply Side Intervention program, the Local Authorities Re-Orientation Program and the Farm Mechanization and Agricultural Support Enhancement Facility.

But for other purposes such as purchasing fuel, electric power and food from abroad, the RBZ dipped into customer accounts to tap hard currency, Reserve Bank Governor Gideon Gono has publicly acknowledged.

The former opposition Movement for Democratic Change formation headed by Prime Minister Morgan Tsvangirai has been pressing for Gono to be removed, but President Robert Mugabe, who reappointed him in late 2008 without consulting his future governing partners, has adamantly refused.

Financial sector sources said the RBZ continues to hold monetary reserves from commercial banks as mandated by the country's Banking Act. It was not clear to what extent this function has been constrained by its mounting woes.

Despite the bleak picture emerging from the RBZ, Ngwenya told VOA Studio 7 reporter Gibbs Dube that Zimbabwe could function without its central bank. He said the Ministry of Finance, which currently exercises far more financial power than the diminished central bank, would name an interim curator.

“As far as Zimbabwe is concerned, this is the kind of institution that we can do without as it is an institution that symbolizes all the negatives and all the trials and tribulations that this country has gone through,” he said, adding that “we are not going to have any weeping and mourning if it collapses.”