IMF warns Zim­babwe to stop ‘print­ing val­ue­less money’

African Independent - - NEWS - BARNABAS THONDHLANA

THE In­ter­na­tional Mone­tary Fund (IMF) has warned that Zim­babwe’s cre­ation of money through elec­tronic pay­ment plat­forms spells doom for the coun­try’s fi­nan­cial sec­tor as banks were spend­ing what they did not have.

The govern­ment has re­sorted to is­su­ing Trea­sury Bills (T-bills) to fi­nance its busi­ness, and elec­tronic funds trans­fers un­sup­ported by cash re­serves over­draft fa­cil­ity had set in mo­tion “the cre­ation of money in the nom­i­nally dol­larised econ­omy” due to the ab­sence of suf­fi­cient cash re­serves.

Govern­ment en­ti­ties, said the IMF, are spend­ing “the bor­rowed funds by cred­it­ing bank ac­counts of the pay­ment re­cip­i­ents (em­ploy­ees, sup­pli­ers, con­trac­tors) through the real time gross set­tle­ments (RTGS) elec­tronic sys­tem”.

Of­fi­cial sta­tis­tics show that, at cur­rent lev­els, TBs held by com­mer­cial banks are now 1.7 times the level of bank equity cap­i­tal, up from 1.3 times at the end of 2016.

“These trans­ac­tions in­crease de­posits in the bank­ing sys­tem, but with­out a con­comi­tant in­crease in the quan­tity of US dol­lars avail­able in cash or ex­ter­nal (nos­tro) ac­counts. To fi­nance the re­main­der of the deficit, the govern­ment is­sued T-bills, mainly ac­quired by com­mer­cial banks but also used as pay­ment for ser­vices,” said the IMF in a com­pre­hen­sive Ar­ti­cle 1V re­port on Zim­babwe is­sued af­ter an IMF board meet­ing last week.

The cre­ation of money through elec­tronic pay­ment plat­forms had been but­tressed by the in­tro­duc­tion of bond notes to pro­vide cash for small trans­ac­tions.

Do­mes­tic debt, which stood at $442 mil­lion in 2013 when ZanuPF won its cur­rent five-year term to end a fis­cally pru­dent pow­er­shar­ing govern­ment with the op­po­si­tion, surged to $4 bil­lion last year.

Ac­cord­ing to the IMF re­port, govern­ment bor­row­ing could worsen bank­ing sec­tor con­fi­dence, thus boost­ing fi­nan­cial sec­tor vul­ner­a­bil­i­ties and mar­ket seg­men­ta­tion.

“The bank­ing sec­tor, once af­fected by hy­per­in­fla­tion, is now be­ing pres­sured by the el­e­vated fis­cal fi­nanc­ing needs, which are crowd­ing out pri­vate sec­tor credit and rais­ing op­er­a­tional risks of banks and cor­po­rates.”

Imara As­set Man­age­ment chief ex­ec­u­tive John Le­gat has also raised the red flag over the cur­rent hold­ings of TBs, which he said could desta­bilise the frag­ile bank­ing sec­tor.

“In our view this ra­tio should be set­ting off alarm bells in the banks’ board­rooms, but clearly it is not,” said Le­gat in a re­search note ti­tled The Great Il­lu­sion.

“Loans to the pri­vate sec­tor are lower than a year ago, re­flect­ing man­age­ments’ lack of in­ter­est in lend­ing to the pri­vate sec­tor where non-per­form­ing loans have been a prob­lem for them. The pri­vate sec­tor has been largely crowded out by govern­ment. So banks have chan­nelled their ris­ing de­posits back into TBs. They have all but cur­tailed the abil­ity of de­pos­i­tors to with­draw their money in the form of cash, hence the long queues that now ex­ist out­side the banks.”

Ex­plain­ing the grav­ity of the sit­u­a­tion, the IMF said the Re­serve Bank of Zim­babwe (RBZ) had limited ca­pac­ity to hon­our its obli­ga­tions for bank as­sets in the form of RTGS elec­tronic bal­ances and T-bills be­cause of in­suf­fi­cient re­serves, pos­ing great dan­ger to banks.

But the Bret­ton Woods in­sti­tu­tion noted that, based on the of­fi­cial in­di­ca­tors, Pres­i­dent Robert Mu­gabe’s govern­ment, for long blamed for eco­nomic mis­man­age­ment, was “less con­cerned about bank liq­uid­ity and sol­vency”.

RBZ gov­er­nor Dr John Man­gudya said ex­ports were lower than im­ports at the mo­ment, re­sult­ing in ex­pen­di­ture be­ing more than the in­come. “At the end, govern­ment is forced to bor­row from the lo­cal mar­ket and this in­creases money sup­ply – money which, how­ever, is not backed by for­eign cur­rency. When the civil ser­vants and other work­ers are paid they want to ac­cess their money in notes. They want to ac­cess money which is not there.”

Man­gudya said the so­lu­tion lay in push­ing ex­ports and se­cur­ing more re­mit­tances from Zim­bab­weans liv­ing out­side the coun­try.

The IMF said while for­eignowned banks’ ap­petite for T-bills was on the wane, they none­the­less held a large share of their as­sets in RTGS elec­tronic bal­ances.

The IMF said T-bills were no longer risk-free and liq­uid as they were sub­ject to vary­ing de­grees of dis­count­ing in the mar­ket.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.