BUSINESS EDITOR 4 July 2017
HARARE – Zimbabwe’s government is responsible for the current cash crisis
due to its high level expenditure and the widening budget deficit,
economist Ashok Chakravarti has said.
The veteran economist said government’s excessive spending, with more than
91 percent of this year’s $3,7 billion national budget going to salaries,
was putting pressure on the limited cash resources in the market.
He pointed out that of the $6 billion deposits in the country’s formal
banking sector by end of April, only $457 million was in circulation –
comprising $67 million in United States dollars, $220 million being held
offshore and $170 million in bond notes – worsening the liquidity crunch.
“This is far below the 15 percent cash required in a normal economy to
allow for easy transactions and reduce cash shortages,” Chakravarti said,
adding that Diaspora remittances were also dwindling as people were
failing to get their money from banks due to restricted cash withdrawals
“The government’s high levels of expenditure needs to be cut by at least
50 percent either by reducing the number of civil servants or through the
government living within its means,” he told delegates attending a Sapes
Trust meeting in Harare last week.
Chakravarti’s pronouncements came hardly a week after the World Bank also
blamed President Robert Mugabe’s government for creating a cash crisis in
the country through excessive borrowing.
This was after the Zanu PF-led government had intensified its borrowing
last year to fund a widening budget deficit, which hit 10 percent of the
country’s gross domestic product, estimated at $14 billion.
In a report on the country’s economic situation, the World Bank said
government had raised the majority of its funding from an overdraft with
the Reserve Bank of Zimbabwe (RBZ) and through Treasury bills (TBs) issued
to the private sector.
“Most of the Treasury bills were eventually bought by commercial banks at
discounted rates. While this boosted the profitability of banks in the
short-term, the scale of the borrowing resulted in liquidity shortages
across the financial sector. In response, banks placed daily restrictions
on cash withdrawals, while the RBZ issued bond notes since November 28,
2016 and promoted the use of mobile payments,” the World Bank said.
The Bretton Woods institution’s latest report also reiterated suggestions
last year by global advisory firm, Exotix Capital Partners, that TBs had
caused the cash crisis, which government and the RBZ have blamed on errant
market behaviour, including externalisation of US dollars by cash
Exotix said the depletion of cash in the market started at the same time
government started injecting TBs in 2012.
The firm said the TB issues had resulted in a form of unchecked money
printing, which had driven real money out of circulation and replaced it
with a phony currency which could only transact on virtual platforms.
“As the principal and interest payments on these government securities are
settled on the RTGS (real time gross settlement), it is clear that the
government has been using the issuance of this debt to effectively print
money. This money printed and placed in the RTGS has helped keep the RBZ
liquid in `local US dollars’,” Exotix said.
“The total value of bank balances with the RBZ increased from US$197
million in 2009 to US$778 million at April 2016. The growth in bank
balances with the RBZ has allowed for its ratio to total deposits to
remain relatively flat over the past seven years.”
A few weeks ago, government issued TBs to Zesa Holdings (Zesa) for debts
owed by parastatals, local authorities and fertiliser manufacturer, Sable
The issuance of TBs worth $600 million to the national power utility meant
that government had assumed Sables’ and parastatals and local authorities’
debts to Zesa.
That debt on government’s books would attract interest, intensifying
fiscal pressure already evidenced by failure to honour bonus payment
commitments and paying civil servants salaries on time.
Government is also contemplating issuing TBs worth $400 million to bail
out the National Railways of Zimbabwe in its recapitalisation drive should
private partners fail to support the rail transporter.
In April, Finance and Economic Development minister, Patrick Chinamasa,
said government had, since 2014, issued TBs amounting to $4,417 billion to
raise money to fund its expenditure as well as legacy debts.
These included servicing government debt, central bank’s $1,2 billion
debt, recapitalisation of parastatals and take-over of collateralised
non-performing loans by the Zimbabwe Asset Management Corporation (Zamco).
He said then that a total of $1,102 billion had matured and been
liquidated, leaving an outstanding amount of $3,315 billion as at March 3,
The World Bank noted that the practice of using commercial banks to
finance the national budget had “destabilised the banking system and
constrained liquidity, as evident in sharp limits on cash withdrawals from
bank deposits, and irregular payment of imports.”
It said in its report that net outflows of US dollars had ravaged the
economy, as confidence plummeted and capital took flight.
The Breton Woods institution warned that government had exhausted all
potential revenue sources and had limited resources available for the 2017
National Budget as well as for subsequent budgets.
“Domestic financial markets are too small to absorb the government of
Zimbabwe’s $1 billion overdraft with the RBZ. Replacing this overdraft
with Treasury bills and a domestic bond would further constrain the supply
of credit to the private sector.
“Conversely, adding to the overdraft to finance the 2017 budget will
increase the money supply and intensify inflationary pressures, which to
date have been largely contained by administrative measures,” the World