RESERVE Bank of Zimbabwe (RBZ) governor Gideon Gono says Zimbabwe’s economy is now increasingly reeling from a liquidity crunch as the problem is now manifesting itself in various ways, including financial instruments, the market, monetary funding, balance sheet and bank forms.
Gono told bankers yesterday at a local hotel in Harare during the Banks and Banking Survey breakfast event organised by the Zimbabwe Independent and FBC Bank that liquidity challenges were deepening even though the multicurrency system has brought exchange stabilisation and macro-economic stability.
He said the problem was the major sources of liquidity and broad money supply in the economy, which comprise export earnings, diaspora remittances, offshore lines of credit, foreign direct investment and portfolio investments, were not performing well.
Gono, who was the guest speaker, made the remarks while delivering an address under the topic “Liquidity Trumps Growths”.
“To the extent that the RBZ has not been issuing currency under the multiple currency system, there is need to ensure streams of foreign currency inflows continue to meaningfully contribute to liquidity levels in the economy,” Gono said.
“Regrettably, the recovery in the export sector has remained sluggish, diaspora inflows have been stunted by adverse global economic developments, while capital inflows have remained subdued on account of growing investor uncertainty.
These developments have conspired to perpetuate liquidity shortages in the economy.”
Apart from the liquidity crisis, Gono said since 2000 a worrisome import syndrome has gripped the country, driving the external sector position into disequilibrium.
“This has combined with the country’s narrow export base which is dominated by low-value primary commodities to worsen the country’s external sector position. In addition, subdued capital inflows in the wake of the suspension of budgetary and balance of payments support to the country by international creditors has compounded the external sector position as well as the liquidity situation in the country,” he said.
“Against this background, the export earnings realised by the country as well as the subdued capital inflows, have been drained by a burgeoning import bill that has been necessitated by attendant supply gaps in the economy.”
He also said short-term deposits “have largely remained short-term in nature with the banking system mainly used as a conduit to facilitate salary payments and withdrawals”.
“Despite securing credit lines, Zimbabwean borrowers have continued to face stringent borrowing conditions. Notable conditions that have affected utilisation levels include facilitation fees, deposit requirements and various legal aspects, which sometimes take up to six months to fulfill,” Gono said.
“Evidently, out of offshore facilities worth US$2 billion approved by the External Loans and Coordinating Committee, only US$899 million was drawn-down since the beginning of the year.
“Against such low utilisation levels of 42% realised this year to date, the country will continue to face persistent liquidity challenges.”
Gono also spoke about limited policy space, re-emergence of malpractices within the banking sector, capital adequacy, issuance of Treasury Bills and banks’ reluctance to support their tenders, financial inclusion, structural challenges and debt resolution, even though he omitted details due to time considerations on some of the issues in his official presentation.
At the function, at which the Development Bank of South Africa’s continental development-finance institutions head David Monyae spoke about his bank’s vision and projects in the region, Standard Chartered Bank was crowned the best bank in the country for the second year running in the Independent’s 2012 edition of banks and banking survey.
Stanbic Bank and MBCA Bank Ltd were named first and second runner-up, respectively, while former FBC Holdings CEO, Livingstone Gwata, received special commendation.
The survey was based on financial results for the half-year to June 30, 2012. The banks were rated on a strong domestic franchise, reasonable profit levels, good asset quality, low risk to earnings, and liquidity.
The evaluation matrix considered, among other variables, the size of the bank’s balance sheet relative to the country’s gross domestic product, balance sheet growth as represented by growth in loans and deposits as well as asset quality.