Taurai Mangudhla Senior Business Reporter
Foreign currency shortages that culminated in the prevailing cash shortages are one of the major economic highlights of 2017. While the media and public debate have predominantly focused on the long queues and transaction complications arising from the shortage of cash, little has been said about how depositors have lost value due to exchange rate disparities.
The cause or origin of the problem have been a subject of debate ranging from growth in the stock of Treasury Bills to introduction of bond notes and low productivity. Different arguments have been proffered regarding what contributed most to the scourge.
Finance and Economic Development Minister Patrick Chinamasa, earlier this month said the fiscal imbalance in Treasury was being financed, through Treasury Bills and overdrafts at the Reserve Bank, but with destabilising consequences on overall macro-economic stability.
In the 2018 National Budget statement, Minister Chinamasa said at the heart of the economy’s fundamental economic challenges was an unsustainable budget deficit, whose financing through issuance of Treasury bills and recourse to the overdraft with the Reserve Bank was untenable.
During the period January to September 2017, Treasury issued Government instruments worth $1,75 billion in the form of both Treasury Bills and bonds. Of the $1,75 billion Treasury Bills issued to September 2017, about $386,45 million financed Government programmes, while $1,07 billion was channelled towards servicing legacy debts.
By March this year, RBZ governor John Mangudya, announced Government had issued TBs worth close to $2,1 billion in two years. This revelation was corroborated by Minister Chinamasa in his 2018 National Budget.
“The current trend and manner of issuance of Treasury Bills is unsustainable and has not only led to mounting interest payment obligations, but now also poses significant risk of resurgence of macro-economic instability.
The level of Treasury bills has created a situation whereby there is a disparity between high levels of virtual money against available United States dollars and bond notes (and) the scarcity is translating into exchange premiums that stoke the rising prices of goods and services,” Minister Chinamasa said in the budget statement.
This, the Minister added, has been worsened by cases where some market players have ended up discounting Treasury Bills and directing proceeds towards buying the scarce foreign currency, without directly promoting production and exports.
Zimbabwe is net importer with a current account deficit, estimated at $1 billion, according to the 2018 National Budget. The economy’s import bill is still relatively high, with imports estimated to rise to $6,8 billion, from $6,4 billion in 2016. Bond notes were issued towards the end of 2016 and a total of $600 million worth of the notes will soon be in circulation.
The issuance of bond notes raised fears of the re-emergence of the black market and hyperinflation, but that has been contained for a while. At the beginning of the year, bond notes were at par with the US dollar, but the situation was to change as foreign currency shortages worsened.
Importers started mopping up foreign currency from the streets at a premium of 5 percent and the rate was to grow to a peak of 95 percent in November. Ecocash withdrawals were also being charged a premium of between 20 and 40 percent while RTGS and Zip-it transactions were treated the same.
However, officially, there is no bond note or US dollar, but reality is otherwise. Every mode of payment is effectively valued against the physical US dollar. This meant that for one to get physical cash for importing or buying anything being sold for cash only locally, they have to pay premium that is a loss on their dollar value.
For argument’s sake, at current rates of 50 percent for cash transfers, $1 500 in a bank account will only get the depositor $1 000 physical cash. This implies a significant loss in value, particularly for individuals that were sitting on significant amounts of money.
Banking sector deposits maintained an upward trajectory, increasing by 17,1 percent, from $6,51 billion as at end of December 2016, to $7,62 billion as at end of September 2017. However, the majority of the deposits are call deposits.
The RBZ said the average deposits rates for savings of 1 to 3 months tenors remained unchanged at 4,22 percent, 3,84 percent and 4,11 percent, respectively, during the week ending December 15, 2017 with broad money recording an annual growth of 44,69 percent, from $5 312,9 million in October 2016, to $7 687,0 million in October 2017.
“This was on the back of an annual expansion of 57,9 percent in transferable deposits. Partially offsetting the increase were declines of 3,2 percent in time deposits and 14,15 percent in negotiable certificates of deposits NCDs,” the RBZ said.
Deposit rates remain far below 5 percent, while the cost of hard currency is now around 50 percent, representing a huge loss in balances that are currently being held in banks.