Putting the cash situation into perspective
CONTRARY to pessimists, the introduction and performance of bond notes has so far been to the satisfaction of the market. The surrogate currency is currently largely trading at par with the US dollar. It is also being widely accepted for local transactions as the Reserve Bank of Zimbabwe (RBZ) delivered on its promise to release the notes in a measured manner without flooding the market.
Also, the pace at which transacting public is also warming up to the electronic money is encouraging.
However, it would be too early to dismiss the possibility of difficult times ahead.
The depressed performance of the real sector together with the continued demand for cash remains the major downside risks to the success registered so far. Corruption also continues unabated. Of major concern is the brewing grey market for multiple currencies as foreign payment backlogs take a toll on the smooth functioning of business.
The RBZ recently indicated its intention to inject the $5 bond notes by March this year as it ramps up efforts to ease cash shortages.
Undoubtedly, this will go a long way in further reducing queues — which have been shortening of late — at banking halls.
The central bank needs to spruce up the soon to be introduced $5 note, if need be, in order to discourage counterfeit notes and also further instil confidence in the currency.
There might also be need to agree with individual banks on the need to import smaller denominations of multiple currencies, especially the US dollar, as they are less vulnerable to externalisation.
The disappearance of the US$50 and US$100 notes and their subsequent trade at a price as high as 5 percent of their face value is instructive.
Banks are advised to move from daily to monthly cash withdrawal limits so as to minimise the frequency of customer visits to their banking halls.
The US$72,9 million bond notes injected in the economy so far seem to be dominating the multi currencies in local transactions.
This could be an indication that we are getting close to the ideal situation where the surrogate currency and electronic money are devoted for local transactions while the multiple currencies are preserved for foreign payments.
Worryingly, however, this dominance could be an indication of withdrawal of the multiple currencies, especially the US dollars, from the banking system as business seeks to finance the import of their products through other means.
Banks are experiencing serious foreign payment backlogs, which date as far back as six months at some institutions.
It is only prudent to interrogate how the affected companies are surviving, which shines light to my earlier assertion of a brewing grey market.
As long as the entry and exit points remain porous, the scarce multiple currencies will continue to be externalised, while smuggling will also continue.
The continued existence of restricted products under SI 64 of 2016 — in some cases in huge quantities — is quite revealing.
As long as Zimbabwe remains a consumptive economy highly dependent on imports, its cash challenges are far from being solved.
Imports continue to outpace exports, with an average negative trade gap of US$2,5 billion having been recorded since dollarisation in 2009.
Worryingly, there seems to be no traction in growing the economy and achieving the desired balance from the responsible ministries.
The industrial strategy, which ran from 2012 to 2016, was unable to achieve desired results as poor implementation and factional political stand-offs continue to dictate the pace of progress.
For instance, the resuscitation of Ziscosteel remains a pipe dream despite it being accorded top priority in the said industrial strategy.
Also, Statutory Instrument (SI) 64 of 2016 will only be relevant in as much as the productive sector steps up to the plate.
It is advisable for Government to implement the desired fiscal and structural reforms to put the economy back on track. Surely, it cannot be business as usual. Whilst this happens, the RBZ should not relent in finding a solution to the mounting foreign payment gridlocks.
The central bank has no option but to negotiate for more Nostro support-
ing facilities.
However, it is advisable that the cost of these facilities be passed to the importers, given the high level of Government’s indebtedness.
In any case, the private sector is already incurring costs as high as 15 percent in buying and smuggling out cash for importing merchandise.
It is clear that a permanent solution to the country’s cash challenges cannot be realised in the short term.
Cash challenges are largely a symptom of the under-performing real sector of the economy and, as such, may not disappear overnight either because of the bond notes or the uptake of electronic money.
Growing the real economy would largely depend on Government’s will- ingness to implement radical policy measures.
Friendly policies to attract and retain both domestic and foreign capital could be a key differentiator.
The following policy advice is proffered to build on the progress made so far:
Real economy
◆ Revisit the indigenisation policy to attract foreign capital to kick start production
◆ Open up the economy through reduced regulations to attract foreign capital
◆ Uproot corruption from the top to curb externalisation
◆ Privatise parastatals so as to concentrate on provision of social services.
Trim Government
◆ Implement the ease of doing business reforms expeditiously
Monetary economy
◆ Negotiate for Nostro support facilities to ease foreign payment backlog. However cost of such facilities should be passed on to customers as RBZ has no capacity to continue contracting debt
◆ Negotiate with banks to import small denominations of cash to minimise externalisation
◆ Encourage banks to move from daily to monthly cash withdrawal limits to ease queues at banks
◆ Resist any temptation to print more bond notes
Admittedly these policy advices are not new, they have been proffered before. As a country, we fall short on IMPLEMENTATION.
There is no room for half measures or postponement of action. We need to act now!!!
IT IS only human to give credit where it
is due.