LAST week acting Governor of the Reserve Bank of Zimbabwe (RBZ) Charity Dhliwayo presented a Monetary Policy Statement (MPS) in compliance with the RBZ Act following the strategic postponement, prior to her term of office, of the MPS as it was legislatively due in mid-2013.
Dhliwayo demonstrated a remarkable willingness to face up to economic and fiscal realities, and pursue the right measures to address many of the ills afflicting the economy in general, and the monetary environment in particular.
She did not allow the fact that she is fulfilling an acting role deter her from recognising those realities, and to pursue requisite remedial measures.
At the outset, she summarised some of the challenges as including, among others:
A severe and persistent liquidity crunch “which has made it very difficult for local productive sectors to access sufficient credit to oil the wheels” of the economy;
Lack of competitiveness of locally produced goods “due to high costs of production”, resulting in huge importation of finished goods, and consequential widening of the current account deficit;
Infrastructural bottlenecks, especial around key economic enablers such as energy, transport and communication, the resultant bottlenecks eroding viability and competitiveness of local producers in key economic sectors;
Inadequate and often erratic service delivery from parastatals and local authorities;
Low industrial capacity utilisation, accentuated by widespread company closures, deterioration in the external sector position, and rising formal unemployment;
Increasing liquidity shortages;
Drainage of banking sector liquidity and resultant banking sector vulnerabilities.
Amongst the many remedial measures which she highlighted, she emphasised that RBZ will, as recently announced by the Minister of Finance, resume its role as banker to government, and this will ensure that all government deposits would be channeled to the central bank. Concurrently:
RBZ will seek to raise funding for government when required;
A lender of last resort facility of between US$150 million and US$200 million will be funded to support the banking sector, thereby addressing temporary liquidity challenges of banks, but only against acceptable collateral;
Efforts will be made to harness foreign investment, offshore credit lines, foreign aid, and diaspora remittances, into the formal economy;
Banks are required to set aside adequate provisions “that reflect the level of credit risk” in their loan portfolios;
Non-performing insider loans are to be assiduously contained;
Banks are to offer mortgage banking products, through the establishment of dedicated mortgage departments;
Treasury bills are to be issued, thereby providing acceptable collateral for banks, whilst simultaneously raising short-term bridging finance for government;
Banks are required to submit comprehensive recapitalisation plans by not later than mid-2014;
The maximum fixed asset ratio of banks is prescribed at 25%t;
No bank shall grant loans to insiders and to related interests, whilst existing loans may not be renewed or rolled over;
Banking institutions will be required to justify any increases in their charges or interest rates, and to upgrade their core banking and delivery systems “to promote efficiency” and “assist in reducing the cost of service” (thereby translating to lower charges for the banking public);
Microfinance institutions are to re-orient their lending portfolios, directed increasingly towards the economy’s productive sectors.
Yet another commendable stance adopted by the acting governor was an emphatically assertive statement that, contrary to nationwide rumours, the Zimbabwean dollar will not be reintroduced for years to come, and the multi-currency regime will continue to be in force.
Moreover, that regime is to be expanded beyond the current Botswana pula, British pound sterling, euro, South African rand, and United States dollar, to include the Australian dollar, Chinese yuan, Indian rupee and Japanese yen. This will undoubtedly enhance liquidity in the hands of the populace, albeit only to a limited extent.
Whilst it is impossible to transform an economy which has been whipped and beaten for over 16 years (mainly by government mismanagement) overnight, the measures of the recent MPS are effective towards halting the economic decline, and enabling the economy to take the first tentative steps towards recovery.
In her forthright MPS Dhliwayo demonstrated considerable courage and great determination to pursue the economic upturn Zimbabwe’s poverty-stricken population greatly needs.
She also deserves to be highly commended for the measures aimed at restoration of order and good conduct in the monetary and banking sectors.