45 DAYS TO BOND NOTES

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He said the adop­tion of bond notes came in the con­text of in­cen­tivis­ing pro­duc­tion, a long term strat­egy for eco­nomic growth frame-worked along an ex­port in­cen­tive scheme of up to five per­cent to pro­mote ex­port of goods and ser­vices.

“At the rate at which the coun­try is ex­port­ing and based on sta­tis­tics ...we an­tic­i­pate that bond notes equiv­a­lent to around $75 mil­lion will be in the mar­ket by the end of De­cem­ber 2016.

“The bond notes which will start to cir­cu­late by end of Oc­to­ber 2016 will be at par with the US$ (that is; one to one) and will be used and treated in the same man­ner as bond coins,” said Dr Man­gudya.

“In sim­ple terms ex­porters will re­ceive the in­cen­tive pro­ceeds in US$ and the in­cen­tive will be cred­ited to their US$ ac­counts in US$ cur­rency. An ex­porter will then trans­act through RTGS, makes for­eign pay­ments for im­ports of goods and ser­vices and trans­act freely within the multi-cur­rency ex­change sys­tem. It is also im­por­tant to note that bond notes shall not be forced on peo­ple who do not like them.”

The cen­tral bank chief said the mul­ti­c­ur­rency for­eign ex­change sys­tem “is here to stay” as he al­layed fears over the re­turn of the Zim­bab­wean dol­lar. He added that the sus­tain­abil­ity of the multi-cur­rency sys­tem was de­pen­dent on the econ­omy’s ca­pac­ity and abil­ity to gen­er­ate for­eign ex­change to meet its do­mes­tic and for­eign re­quire­ments, de­vel­op­ment and pro­mo­tion of for­eign ex­change rev­enue streams such as ex­ports of goods and ser­vices and di­as­pora re­mit­tances.

Dr Man­gudya ex­pressed con­cern over the coun­try’s trade deficit — es­ti­mated to be around $2.5 bil­lion per an­num — which he said re­quires a sub­stan­tial pol­icy shift to pro­mote ex­ports in view of lack of com­pet­i­tive­ness of Zim­bab­wean ex­ports.

He said this re­al­ity gave the Gov­ern­ment im­pe­tus, through the apex bank, to in­tro­duce the per­for­mance re­lated ex­port bonus scheme of up to five per­cent to ex­porters.

“The fund­ing mech­a­nism of the ex­port in­cen­tive scheme will be through bond notes in or­der to pre­serve the off­shore $200 mil­lion counter-cycli­cal fa­cil­ity that has been ar­ranged to sup­port the ex­port bonus scheme from ex­ter­nal­i­sa­tion and/or cap­i­tal flight, which has con­tin­ued to neg­a­tively af­fect the econ­omy since dol­lar­i­sa­tion in 2009. The bond notes will be zero-coupon, tax-ex­empt debt in­stru­ments,” he ex­plained.

The Gover­nor said the is­suance of bond notes has a self-con­trol mech­a­nism in that when there are no ex­ports there will be no bond notes. He said the bond notes will be grad­u­ally re­leased into the econ­omy “in sym­pa­thy with ex­port re­ceipts through nor­mal bank­ing chan­nels up to a max­i­mum ceil­ing of the fa­cil­ity of $200 mil­lion.”

The ceil­ing would be at­tained when to­tal ex­ports are around US$6 bil­lion, he said.

He ac­knowl­edged pub­lic con­cerns and anx­i­ety over bond notes, which he said was em­a­nat­ing from the gen­eral lack of trust and con­fi­dence within the econ­omy.

“The bank is ad­dress­ing the con­cerns by plan­ning to in­tro­duce smaller de­nom­i­na­tions of bond notes of $2 and $5. In ad­di­tion the bank has pro­posed for the set­ting up of an in­de­pen­dent board to have an over­sight role on the is­suance of bond notes in the econ­omy,” said Dr Man­gudya.

He in­sisted that the com­ing in of bond notes does not mark the re­turn of the Zim­babwe dol­lar through the back door and that macro-eco­nomic fun­da­men­tals or con­di­tions for the re­turn of the lo­cal cur­rency are not yet right to do so.

Dr Man­gudya said the eco­nomic sit­u­a­tion in Zim­babwe re­quires the na­tion to do things dif­fer­ently and “walk the talk” to trans­form the econ­omy by chang­ing the nar­ra­tive from con­sump­tion to pro­duc­tion.

He said the econ­omy was hun­gry for pro­duc­tion and pro­duc­tiv­ity adding that the more than 90 per­cent pub­lic sec­tor wage and salary bill was not sus­tain­able as it un­der­mined the econ­omy’s ca­pac­ity to en­hance em­ploy­ment and to be com­pet­i­tive.

“Walk­ing the Talk within the above con­text of weak eco­nomic con­di­tions re­quires pol­icy pre­ci­sion and ur­gent im­ple­men­ta­tion of nec­es­sary re­form mea­sures to trans­form the econ­omy. The process won’t be easy but must be done. It re­quires na­tional sac­ri­fice, sin­cer­ity and in­tegrity. It re­quires the abil­ity to share the ad­just­ment or trans­for­ma­tion bur­den across the board and be­tween the fis­cal and mone­tary poli­cies,” said the Gover­nor.

He an­nounced a string of pol­icy mea­sures meant to com­ple­ment con­fi­dence and pro­duc­tion. Th­ese in­clude: ease of se­cur­ing off­shore loans, in­cen­tivis­ing in­flows from the Di­as­pora and pri­vate un­re­quited trans­fers, a $215 mil­lion Nostro sta­bil­i­sa­tion fa­cil­ity, $20 mil­lion gold de­vel­op­ment ini­tia­tive for small scale gold pro­duc­ers, $10 mil­lion hor­ti­cul­ture/flori­cul­ture pre- and post-ship­ment fa­cil­ity, re­sus­ci­ta­tion of the credit guar­an­tee scheme, es­tab­lish­ment of an off­shore fi­nan­cial cen­tre and guid­ance on in­ter­est rates charged by mi­cro­fi­nance in­sti­tu­tions.

Dr Man­gudya re­ported that the bank­ing sec­tor av­er­age pru­den­tial liq­uid­ity ra­tio, at 52.47 per­cent as at 30 June 2016, was above the reg­u­la­tory min­i­mum re­quire­ment of 30 per­cent. To­tal bank­ing sec­tor de­posits jumped by 5.2 per­cent to $5.9 bil­lion as at 30 June 2016 from $5.6 bil­lion as at 31 De­cem­ber 2015.

How­ever, bank­ing loans and ad­vances dropped from $4 bil­lion to $3.7 bil­lion as at 30 June 2016, a trend at­trib­uted to cau­tious and pru­dent lend­ing mea­sures by bank­ing in­sti­tu­tions.

To sta­bilise and stim­u­late the econ­omy, Dr Man­gudya said the RBZ was en­gag­ing the bank­ing sec­tor to re­duce lend­ing in­ter­est rates to a max­i­mum of 15 per­cent agreed in May 2016.

“To that end, I am pleased to re­port that most bank­ing in­sti­tu­tions have heeded the call re­sult­ing in a con­tin­ued de­cline in lend­ing rates. How­ever, there some banks which are still lend­ing at rates above the 15 per­cent agreed thresh­old. Th­ese banks are urged to re­duce their lend­ing rates to lev­els be­low the thresh­old,” he said.

Dr Man­gudya pro­jected that in­fla­tion would re­main broadly sub­dued in 2016 with the per­sis­tent weak­en­ing of the South African Rand against ma­jor currencies and low ag­gre­gate de­mand con­tin­u­ing to ex­ert down­ward pres­sure on do­mes­tic prices.

Dr Man­gudya stressed the need for fi­nan­cial in­clu­sion in line with the Na­tional Fi­nan­cial In­clu­sion Strat­egy, which was launched on 11 March 2016. He said a num­ber of pol­icy mea­sures taken since May 2016 had started yield­ing pos­i­tive re­sults on the econ­omy.

Th­ese in­clude pro­mo­tion of cash­less pay­ment sys­tems that in­clude the use of plas­tic money through point of sale (POS) ma­chines, on-line bank­ing, trans­fers and other elec­tronic bank­ing sys­tems.

In this re­gard, he re­ported that to­tal elec­tronic pay­ments have in­creased from $4.1 bil­lion in Jan­uary to US$5.5 bil­lion in July. The cen­tral bank has also capped cash with­drawal amounts to $1 000 for in­di­vid­u­als and $10 000 for cor­po­rates per day in line with in­ter­na­tional best prac­tice.

Dr Man­gudya, how­ever, noted that queues in bank­ing halls on pay­days con­tinue al­though the “cash short­age has sub­sided” es­pe­cially in view of the surge in the use of cash­less pay­ment sys­tems.

The Gover­nor said gold de­liv­er­ies to Fidelity Print­ers and Re­fin­ers as at 30 June, was 9.6 tonnes com­pared to 8.1 tonnes de­liv­ered dur­ing the same pe­riod in 2015, rep­re­sent­ing an in­crease of 18 per­cent.

“En­hanced pro­duc­tion will in­crease em­ploy­ment, fis­cal space, ex­ports, eco­nomic growth and re­duce im­port de­pen­dence and poverty. This is the panacea to re­store trust and con­fi­dence,” said Dr Man­gudya.

Re­serve Bank of Zim­babwe Gover­nor Dr Dr John Man­gudya( right)

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