THE Reserve Bank of Zimbabwe (RBZ) says bond notes will be brought into circulation at the end of October and a measured approach will be adopted to gradually increase the total stock of the surrogate currency to about US$75 million by year-end.
By Bernard Mpofu/Kudzai Kuwaza
Zimbabwe has been facing a serious cash crunch, its first since the country abandoned the local currency in 2009 for a basket of international currencies mainly dominated by the United State dollar.
Central bank chief John Mangudya yesterday told bankers and journalists that lower denominations of bond notes will be introduced next month, adding that the notes would not have inflationary impact on the economy, but are measures by the apex bank to incentivise exporters and curb money laundering.
“The bond notes which will start to circulate by end of October 2016 will be at par with the US dollar and will be used and treated in the same manner as bond coins,” he said.
“At the rate at which the country is exporting and, based on statistics, we anticipate that bond notes equivalent around US$75 million will be in the market by the end of December 2016.
“The bank has heard and taken note of the public’s concerns, fear, anxiety and scepticism of bond notes which all boils down to the general lack of trust and confidence within the economy. The bank is addressing the concerns by planning to introduce smaller denominations of bond notes of US$2 and US$5. In addition the bank has proposed the setting up of an independent board to have an oversight role on the issuance of bond notes in the economy.”
He added that government should walk the talk in implementing far-reaching reforms needed to mend the economy which is seen registering modest 1,2% growth this year. This comes after cabinet overturned austerity measures announced by Finance minister Patrick Chinamasa and replaced the cost-cutting plans with populist manoeuvres.
“Walking the talk within the above context of weak economic conditions requires policy precision and urgent implementation of necessary reform measures to transform the economy. This process won’t be easy, but must be done,” Mangudya said.
In February, the RBZ announced a raft of stringent measures which include capping cash withdrawals, restrictions on offshore investment and suspending free funds to tackle illicit money flows and capital flight remittances after nearly US$2 billion evaporated from the capital-starved economy through externalisation last year.
The central bank chief said the introduction of the bond notes was meant to ease cash shortages, adding that they should not be seen as the re-introduction of the redundant Zimbabwe dollar and will not be forced on people.
An unsustainable current account deficit, a poor balance-of-payments position, massive revenue leakages and an uneven distribution of liquidity in the market have worsened the cash shortages.
Turning to the state of the economy and seeking to narrow the fiscal deficit while stimulating competitiveness, Mangudya proposed several measures which include leveraging and securitisation of natural resources; acceleration of state-owned enterprises reforms; improving the ease of doing business; clarifying the indigenisation policy and internal devaluation.
On the banking sector, he said the industry remained sound, adding that the central bank would direct micro-finance institutions to lower monthly interest rates to 10% from 20%.
“The measures would need to be supported by concessional external financing. Thus, with fresh foreign financing being an integral part of the envisaged Zimbabwe transformation agenda, completion of the re-engagement process is critical to improve Zimbabwe’s country risk premium,” Mangudya said.