Short-term money crippling industry
CRITICAL sectors of the local economy are largely struggling to get access to affordable bank financing as deposits are largely dominated by short-term money.
Financial experts say short-term money typically increases demand by allowing capital liquidity to be more available through the lending system, but demand outstrips supply so the money supply has to be used to control free-flow liquidity by increasing interest rates. However, high interest rates are not conducive for financing long-term business and economic projects.
According to Reserve Bank of Zimbabwe (RBZ) figures for April 2018, broad money was made up of transferable deposits at a significantly high figure of 77,75 percent, while time deposits accounted for 16,93 percent.
Currency in circulation accounted for 4,28 percent of total broad money as at April 2018, and negotiable certificates of deposits accounted for 1,03 percent.
Broad money is a term denoting a certain measure of the amount of money (of the money supply) in a national economy, and it is used depending on the local practice. Broad money, also known as M3 includes currency, deposits with an agreed maturity of up to two years, deposits redeemable at notice of up to three months and repurchase agreements, money market fund shares or units and debt securities up to two years.
The figures show that credit to the private sector recorded an annual growth of 8,65 percent, from $3,433 billion in April 2017 to $3, 73 billion in April 2018.
Monthly credit to the private sector increased by 0,88 percent, from $3,7 billion in March 2018 to $3,73 billion in April 2018. Importantly, on a sectoral basis, households absorbed 24,15 percent of total domestic credit, followed by agriculture at 18,56 percent, followed by distribution at 13,17 percent, and services at 12,75 percent.
All things being equal, the following sectors should absorb more of local bank credit as these are the productive sectors of the economy. But the manufacturing sector only received 11,24 percent of the financing, followed by financial organisations and investments at 10,36 percent, the mining sector accounting for 4,31 percent, construction at 2,44 percent and transport and communications at a mere 1,61 percent.
The RBZ figures also show that private sector credit was largely utilised for inventory build-up, with that accounting for 33,46 percent; consumer durables accounting for 17,65 percent of the private sector credit, while fixed capital investment took up 7,11 percent of the credit.
Pre and post shipment financing accounted for 1,12 percent, while other recurrent expenditures accounted for 40,66 percent of the total outstanding loans and advances, during the month under review.