FINANCE minister Mthuli Ncube has suspended the acquisition of non-performing loans (NPLs) by the Zimbabwe Asset Management Company (Zamco) as part of a strategy to contain the country’s domestic debt which stands at US$9,6 billion.
By Tinashe Kairiza
In 2014, government formed a special purpose vehicle — Zamco — to mop-up bad loans in the wake of an alarming rise in the ratio of NPLs which stood at 20% in the banking sector.
International best practice stipulates that NPLs be restricted below 5% to maintain the stability of the financial sector. Presenting his 2019 budget statement, Ncube outlined a raft of measures to “contain” the fiscal deficit to single digit levels. Under the sweeping reforms, the budget deficit is expected to tumble to 5% of gross domestic product (GDP) in 2019, before it further drops to 4,1% and 3,1% in 2020 and 2021 respectively.
“Government has henceforth embarked on a policy stance to gradually reduce the budget deficit to single digit level, hence, targeting 5% of GDP for 2019 and 4,1% in 2020 and to 3% in 2021,” Ncube said. “Furthermore, government has taken the position that there will be no further acquisitions of non-performing loans by Zimbabwe Asset Management Company (Zamco).”
Zimbabwe’s growing domestic credit, driven largely by government borrowings, is scuttling efforts to turn around the country’s fragile economy while choking the private sector from accessing local lines of capital. Ncube also spelt out measures to arrest extra-budgetary expenditure through issuance of statutory bills, which are expected to mature to US$2,2 billion next year.
“Going forward, we are moving away from the practice of incurring extra-budgetary expenditure on the back of Treasury Bill issuances. Treasury Bill issuances will only be confined to the traditional role of mobilising resources to finance the budgeted financing gap, with such issuances triggered by a formal note from the Accountant-General,” Ncube said.
He added that government would also revive the issuance of statutory paper, through the development of a secondary bond market with effect from 2019, as well as explore the possibility of listing such bonds on the stock market.
Zimbabwe’s widening budget deficit, forecast to stand at US$1,2 billion in 2019 from US$2,7 billion last year, has largely been fuelled by government’s unrestrained borrowing from the domestic market after being blacklisted by key international financial institutions for defaulting on its debt obligations.
To contain government’s unrestrained borrowing appetite from the domestic market, Ncube said government borrowing from the Reserve Bank of Zimbabwe would be curtailed.
“Accordingly, government is reducing recourse to Central Bank lending from the 20% of previous year’s revenues statutory limit, to a maximum of 5% confined for purposes of smoothening cash flow mismatches. The above is in conformity with good economic management and governance,’’ Ncube said. His budget, premised on a raft of austerity measures, is meant to foster discipline and macro-economic stability in the wake of a vicious currency volatility crisis, coupled with a chronic foreign currency shortage.