Broad money supply declines

via Broad money supply declines – DailyNews Live by John Kachembere

Zimbabwe’s annual broad money supply growth declined by 18,8 percent in the 12 months to May 2013 as the country’s economy suffocates under liquidity constraints among other challenges.

According to the African Development Bank (AfDB)’s monthly economic review for July 2013, the country’s broad money supply growth — defined as total banking sector deposits — dropped from 31 percent to 12,2 percent during the period under review.

The regional bank noted that higher growth rates recorded in the past were a result of the low base from which the money supply was growing when the economy adopted the multicurrency system in 2009.

“The present low levels of growth in money supply are consistent with the level of economic activity,” said AfDB.

The institution indicated that on a month-on-month basis, money supply went down from 4,4 percent in April 2013 to 1,3 percent in May 2013 while savings and short-term deposits declined while long-term deposits increased.

“Among other factors, if the economy’s external balance of trade improves, and Zimbabwe is able to attract more foreign direct investment (FDI) and portfolio investment, then the liquidity constraints in the economy would improve,” it said.

AfDB said annual total banking sector deposits increased to $4,02 billion from $3,58 billion.

On a month-on-month basis, total banking sector deposits for May 2013 increased to $4,02 billion from $3,97 billion recorded in previous month.

The group attributed the increase in total bank deposits in May 2013 to the significant 28,29 percent increase in long-term deposits.

“However, demand deposits, savings and short-term deposits fell by 1,98 percent and 4,14 percent respectively. The increase in long-term deposits by 28,29 percent indicates an improved depositors’ confidence in the banking sector, despite the uncertainty surrounding the post-election period.”