Gono doles out trillions in QFAs

Paul Nyakazeya



THE Reserve Bank of Zimbabwe governor, Gideon Gono, this week went on an unprecedented spending spree doling out billions of dollars to almost every secto

r of the economy as he resumed his quasi-fiscal activities.


Presenting his monetary policy on Monday, Gono seemed to have a cheque for almost every one.


The list of beneficiaries included communal farmers, women and youth, local government authorities and the troubled Zimbabwe National Water Authority (Zinwa).


In the end the monetary policy sounded more like the national budget where each government department gets a fund allocation.


Tobacco, cotton, maize and soya bean farmers also got a fair share of the largesse.


Gono gave $14,25 trillion to Zinwa and local authorities.


He said Zinwa would use its allocation for water reticulation and while local authorities would use their share for “explicit income generation projects”.


Zinwa and local authorities will also benefit from a US$5,25 million revolving fund. Gono said 3 000 boreholes will be drilled in the next three years with assistance of a $200 billion fund.


That money will come from the central bank. Those who show that they are interested in “solving” the country’s fuel crisis by planting jatropha trees will benefit from a $200 billion fund.


So far, $3,9 trillion has been distributed under the Agricultural Sector Productivity Enhancement facility (Aspef), Gono said.


But there was more in the offing for farmers. Gono announced that the interest rate for the Aspef funds will be reduced from 50% to 25%. Maize farmers while with effect from the coming season be
paid in foreign currency for their produce.


Gono said maize farmers will get US$200 per tonne, half of which will be paid in foreign currency.


“In the event import parity prices warrant higher payments, any further top-up, over and above the US$200 per tonne will be payable in local currency,” said Gono.


“The Reserve Bank has programmed itself to setting aside a total of US$180 million for payment to our maize farmers for the 2007/2008 harvest, up to a maximum intake of 1,8 million tonnes of
commercial maize and 50 000 tonnes of seed maize beginning next season.”


Wheat, barely and soya bean farmers will get US$250 per tonne. Maize farmers who have already delivered to the Grain Marketing Board will get bonuses of $5,8 million per tonne.


That money will not come from the budget but the central bank. The central bank will also pay premium rates for maize that is in bags. Dairy processors will also get funds from the central bank.


In industry, manufacturing and retailing companies will access Bacossi fund from the central bank at concessionary rates of 25%. This fund will also benefit small shop owners in the rural areas.


This, Gono said, would improve production. There will also be a US$5 million for the packaging industry.


Mining companies will also access the funds at the same rate in addition to the increased gold support prices. Backdated August 1, the gold support price was increased from $3 million per gram to $3,5 million per gram.


The support price was be increased to $4 million per gram with effect from September 1 before being pushed to $5 million with effect from October 1. Gono also had a $1 trillion cheque for the women and youth programmes. He said the funds will attract a concessionary interest rate of 25% and will be coordinated through the offices of provincial governors and relevant ministries.


Gono defended the quasi-fiscal activities saying without balance of payment support, it was impossible to implement liberal policies.


“How do we implement liberal policies when at every turn, there are local and international economic agents whose sole role has now been prescribed as that of undermining anything and every attempt we make towards stabilising our economy as part of the political games,” said Gono.


Analysts said it was difficult to understand where Gono would get the money to give to all these sectors. They said the only alternative will be to print money, a move that will further push inflation.


“It is clear that money will be printed to satisfy all these needs, what is not clear is where Gono will get the foreign currency to pay the farmers as he promised,” said economic commentator, John Robertson.


The effects of excessive money printing are already apparent.


Gono said money supply (M3) had increased to 17 073,1% in July from 1 638,4% in January reflecting government’s over reliance on the central bank to print money to fund its operations.


“With money supply growth and inflation closely correlated one can be safely say the July inflation rate was above 14 500% which blends well with the Consumer Council of Zimbabwe (CCZ) figure of 13 000% at the time,” said Genesis bank chief economist Brains Muchemwa. .


Gono also technically devalued the local currency to 270 000 by allowing the sale of foreign currency proceeds “at the going exchange rate” of $30 000 to the US dollar and investing in the Reserve Bank’s at a once off overnight rate of 800%. This, analyst said, will neither increase foreign currency inflows nor encourage people to use the official market. The Zimbabwean dollar is trading at $560 000 on the parallel market.


Exporters may retain 65% in foreign currency accounts earning interest of 12 per year in hard currency with balance or all of the proceeds being liquidated at $270 000 to the US dollar within 30 days.


Other highlights of the Monetary Policy Statement included:


* Secured lending rates increased to 800% from 650%;


Unsecured lending were raised to 850% from 700%;


New currency to be introduced;


Local currency devalued to $270 000 from $30 000;


Three banks issued with corrective measures;


Farmers to be paid in foreign currency;


Daily cash withdrawals for individuals raised to $20 million from $10 million; Companies withdrawals increased to $40 million from $20 million;


Tobacco Foreign Currency Retention allowance to growers increased to 25% from 20%;


Cumulative export shipments amounted to USS$1,059 billion between January and August from US$985,4 million during the same period last year;


Shipments of the general agricultural sector (excluding tobacco and horticulture) US$149 million from US$133,3 million during the same period;


Tobacco shipments US$155 million between January and August;


Mineral shipment excluding gold rose to US$550,9 million between January and August from US$467 million;


Total declared CD3 forms between January and August amounted to US$42,6 million.