Are we seeing the return of quasi-fiscal operations?


Taurai Togarepi
During 2004 to 2008, the Reserve Bank of Zimbabwe embarked on massive quasi-fiscal operations, which included helping funding the farm mechanisation project among other operations.

We all know the consequences of such policies which triggered a huge jump in money supply resulting in hyperinflation where most Zimbabweans had huge balances in their accounts running into several quadrillions. The big question is, are we slowly heading back to that era of quasi-fiscal operations.

The central bank has been running with several support schemes such as the gold, tourism, diamond, cross border and export incentive schemes among others.

Does this mean that our banking system has failed to perform its primary function of financial intermediation?

The central bank’s argument is that they want to help these sectors to recover and contribute meaningfully to the turnaround of the economy especially the gold, tobacco and diamond sub-sectors, which have capacity to generate the much-needed foreign currency.

Notwithstanding this argument, the apex bank should concentrate on creating a conducive environment characterised by efficient banks, which in turn offer facilities at reasonable rates to these sectors as opposed to a situation where the banks and the central bank are competing in the market. The central bank if they want to venture into lending should concentrate on performing its duties of lender of resort and leave the banking sector to carry out its core function.

These quasi-fiscal operations will likely result in excessive growth in money supply, which has an effect of putting pressure on the general, prices of goods and services. Inflation is likely to continue trending upwards being an election year. More doubt has been placed on the official inflation figures of around 3,52 percent, which are not reflective of the real situation on the ground.

The central bank should concentrate on regulating the financial services sector and create an environment that banks can thrive.

The current situation creates distortions in the market. From economic theory, it is true that sometimes markets fail and require the intervention of the visible hand but the way it is being done in Zimbabwe is excessive. From interest rates, bank charges, lending etc. this creates anomalies in the economy.

Furthermore, the RBZ retains a portion of foreign currency from exporters to meet critical imports using the priority list. In all fairness, this is not fair to earners of such funds as they are forced also to queue when they need foreign currency after exhausting the portion they retain in their primary accounts with banks.

The apex bank should leave that role to banks and work hand in hand with the banks to ensure that the foreign currency generated is allocated efficiently among all players. Lastly, history should help us shape the future and avoid repeating past mistakes but it seems this is not the case as there are signs of the return of quasi-fiscal activities at the central bank.


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