HomeBusiness DigestGovt debt fuels money supply

Govt debt fuels money supply

Paul Nyakazeya



THE country’s money supply (M3) surged to 570,7% for January, from 520% the previous month, driven by increased net government domestic debt.
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In its latest monthly economic bulletin, the Reserve Bank said money supply increased by 50,7 percentage points from 520% in December to 570,7% in January this year.


“Annual broad money growth maintained an upward trend from 520% in December 2005 to 570,7% in January. Quasi and narrow money also increased to 583% from 552,2% and 602,2% from 547,4% respectively,” the Reserve Bank said.


In January last year money supply growth was pegged at 177,6%.

“The annual growth in money supply was anchored on an increase of $41,9 trillion in net domestic debt coupled with an improvement of $18 trillion in net foreign assets,” the bank said.


Analysts told businessdigest that the increase could also have been helped by the government’s printing of $21 trillion used to buy foreign currency to repay International Monetary Fund arrears.


“Money supply growth is now too high and is detrimental to any prospects of economic stability in the country,” an economic analyst said.


He said government had to abstain from printing more money and desist from persistent borrowing from the domestic sector to reduce the rate of credit expansion in the ailing economy.


“The government should concentrate on generating foreign currency from exports. The underlying factor is that government has resorted to printing money to pay its debts and domestic needs, and this fuels money supply growth,” said the economic analyst.


He said money supply would continue to rise because the government had few sources of revenue; it is this year expected to print more money to meet civil servants salaries and other expenditure commitments.


Speaking in an interview before his birthday celebrations in February, President Mugabe stunned the nation when he announced that government would continue printing money.

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