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Legality of bond notes: A comedy of errors
14/05/2016 00:00:00
by Tarisai Manungu
Reserve Bank of Zimbabwe (RBZ) governor John Mangudya

TAWANDA Nyambirai (see his article “The legal view of the legality of the bond notes that were announced by RBZ”), argues that bond notes can be issued in terms of Part VI (sections 52 – 77) of the Public Finance Management Act which empowers the State to borrow money through the issue of bonds.

According to him, to be lawful, the bond notes must be issued by the Minister with the authorisation of the President. The Minister must also obtain a written opinion from the Attorney-General approving the legal aspects of the bond notes as provided for in Part VI of the Public Finance Management Act.

Not so says Fadzayi Mahere (see her article “Bond notes and the law: a response to Tawanda Nyambirai”). “Bond notes” are not “bonds” as envisaged by the Public Finance Management Act.  According to her, the Governor of the Reserve Bank is not seeking to issue bonds in terms of the Public Finance Management Act which in any case he cannot do because he does not have the power to do so.

The bond note which RBZ boss John Mangudya proposes to issue is to be treated like money and not as an acknowledgment of debt. A real bond cannot be forced upon a service provider or used in a supermarket because all it does is show that “the Government owes you money”.

Clearly Mahere is right. Apart from the commonality of the word “bond”, there is no relationship between a bond and the Governor’s proposed bond note. Sadly, though, the argument whether bond notes are issued in terms of the Public Finance Management Act does not arise.

Part VI of that Act was repealed in its entirety by the Public Debt Management Act [Chapter 22:21] (Act No. 5 of 2015) which came into force on 4 September 2015. The sections of the Public Finance Management Act which Nyambirai relied on for his argument are therefore no longer in existence.

Borrowing by the State is now governed by the Public Debt Management Act and not by the Public Finance Management Act. I see nothing in the Public Debt Management Act that would remotely suggest a link between a bond and a bond note.

I have no doubt that after perusing the new Act, Mr Nyambirai will issue an appropriate apology to the public. As a person who purports to be a senior legal practitioner, he has a duty to exercise greater care before going public.


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