IMF urges cautious approach to Treasury account transfer

via IMF urges cautious approach to Treasury account transfer – NewsDay Zimbabwe 15 July 2014

THE International Monetary Fund (IMF) has recommended a cautious and gradual approach to the transfer of the Treasury account from the Commercial Bank of Zimbabwe (CBZ) to the Reserve Bank of Zimbabwe (RBZ).

In a statement, the IMF said the government’s consolidated revenue account could only be transferred after the RBZ balance sheet has been sufficiently strengthened.

Over the past five years, CBZ Bank has been handling government’s consolidated revenue account and transferring the account to the central bank has been initiated this month.

However, since the beginning of this month government has initiated efforts to ensure the central bank assumes its primary role.

“The transfer carries implementation risk, as the RBZ has not performed this function for several years, is not able to provide an overdraft facility, and its information systems are still not fully linked to the Treasury systems,” the IMF said in a statement.

Folllowing dollarisation of the economy in February 2009, the bank has not been able to play its lender of last resort function and has been unable to influence monetary policy owing to the use of foreign currency.

The IMF noted that with a robust lender of last resort facility, the central bank will be in a position to participate more significantly in the development of the inter-bank market and accommodate solvent institutions that experience temporary
liquidity shortages.

“There should be a sufficiently long transition period during which clear arrangements are maintained with CBZ to back-stop and cover any cash-flow gaps. Furthermore, this change will require  MoFED [Finance ministry] and RBZ close coordination and stronger cash management,” the IMF said.

Since the introduction of the multi-currency regime, which has constrained the use of monetary policy instruments, the RBZ has continued to focus on promoting a strong and stable financial system; and ensuring that the multi-currency system is maintained to restore and enhance confidence and credibility.

However, the IMF noted that the authorities share the IMF mission’s assessment that vulnerabilities still exist in the financial sector.

Nonetheless, they believe that the recently announced initiatives, such as finalisation of the framework for a credit reference bureau, would improve the sector’s performance and stability.

In March 2014, a $100 million interbank facility by Afreximbank was launched to address the liquidity crunch in the system.

“Through this facility, illiquid, but solvent financial institutions will be able to access temporary funding. The authorities hope that this will help restore confidence in the market and encourage interbank activity,” the IMF said.