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Happiness Zengeni
THE central bank is mulling to introduce discounted and tradable paper to facilitate transactions in the money market against Reserve Bank statutory reserve liabilities to banks, Finance minister Tendai Biti said.
The Reserve Bank of Zimbabwe helped itself to U$1,2 billion bank reserves and foreign currency accounts at the height Zimbabwe’s economic crisis that was characterised by hyperinflation, foreign currency shortages and fuel shortages.
The central bank owes US$83 million to banks in statutory reserves, a development that Biti said was contributing to the prevailing liquidity challenges in the financial system.
“The modalities and the terms and conditions of issuance will be developed in conjunction with the Reserve Bank and the Bankers’ Association,” Biti said.
Biti hopes the introduction of the treasury instrument will overcome the security challenges banks face in accessing the US$7 million Lender of Last Resort funds at the Reserve Bank.
He was speaking in the capital on Wednesday to update the market on post budget developments.
Biti said he would draw down US$110 million of the remaining IMF US$212 million Special Drawing Rights (SDR) funds.
The resources would be used to augment resources allocated in the 2012 budget.
The Special Drawing Right is an interest-bearing international reserve asset created by the IMF in 1969 to supplement other reserve assets of member countries. Zimbabwe was allocated US$505 million SDRs by the IMF.
Biti said that the balance of US$212 million is after the 2009 US$50 million draw down which went towards agriculture and a further drawdown of US$100 million in February 2010 in support of various infrastructure projects.
Biti has come under fire over the use of the funds mainly from the Reserve Bank of Zimbabwe governor Gideon Gono. Biti however said that the funds were not a grant but were a loan.
He said treasury had to take a prudent and cautious approach towards the use of the SDRs. Initially the funds were supposed to be used as reserves. The SDRs will provide a balance of payment cover of at least three months.
However, the challenges in the economy had forced the government to draw down the facility. “A decision has been made to only make fiscal demands when there is a gap in the budget.”
Of the US$110 million, US$40 million will go towards infrastructure development, particularly towards water and sanitation in the light of the typhoid outbreak and towards electricity.
The treasury will also use US$30 million as lines of credit under the Distressed and Marginalised Areas Fund (DIMAF), where Old Mutual has also contributed US$20 million, which is still being disbursed.
Biti said that government would continue with efforts to resuscitate industries as an attempt to bring down the import to export ratio which currently stands at 3 to 1.
The Reserve Bank of Zimbabwe would soon get the US$100 million fund from an unnamed regional bank, with the talks likely to be concluded between the 9th and 10th of February this year.
However, US$20 million of the SDR would go towards the fund. Only US$7 million had been made available to the RBZ in order for it to fulfill its lender of last resort mandate.
Agriculture would get US$20 million towards complementing the previously announced three-year roll out plan.
He said that the problems with banks was that they had been made to finance the current account deficit, adding that some of the banks were not adequately capitalised and some were owed in terms of FCAs.
“There are a lot of issues going against the banks including the hot nature of deposits and corporate governance issues, where most of them have not yet adjusted to the dollarised lifestyle“
During the period January to December 2011, declared export shipments amounted to US$3,67 billion. This, though 65% higher than the US$2,22 billion declared in 2010, is significantly out of balance with the overall figure of reported foreign payments for various imports of US$6,28 billion.
“Clearly, this level of reliance on external savings is unsustainable, making the institution of measures supportive of growth in domestic production unavoidable,” Biti said.
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Govt must have the guts to stem rampant leakages in minerals from Chiadzwa and ensure that they are exported in normal channels, with proceeds being repatriated. Also, the Chinese are significantly contributing to illiquidity! They bring in cheap goods naufactured in China, sell them and 'externailise' all the proceeds back to China. If only we had local entrepreuners in place of these Chinese! Look East Policy, my foot. By the way, are they supposed to repatriate gross takings or profits? Biti & Pasi here's food for thought!