Is the issuance of TBs our own improvised expansionary fiscal policy?


Kudzanai Sharara Taking Stock
The long drawn cash shortages might have tilted the scales towards formal businesses judging by the growth in sales and transactions being reported by players in various economic spheres. The question, however, still remains. Where is all this money coming from?

With most Zimbabweans, both individuals and companies worried about the value of their bank balances, spending the cash seems to be the best option. Judging by the trading updates and results that we are seeing from listed companies, one can easily see that the consumer is on a spending spree.

The number of transactions continue to increase with the RBZ saying 485 million transactions valued at $11 billion were processed on the mobile platforms, representing an 89 percent and 62 percent respectively from 2016. The latest report by POTRAZ points to that growth as well.

According to a second quarter report from POTRAZ, mobile operators generated a total of $185,6 million in the second quarter representing a 3,2 percent increase from $179,8 million recorded in the previous quarter. A modest growth one would say; but it is significant given the context and the fact that the first quarter actually recorded negative growth. POTRAZ’s first quarter report showed that revenues by mobile operators declined by 9,7 percent to $179,8 million.

Delta Corporation, which reported its results this week, also reported growth in volumes and revenues. Delta’s lager beer volumes grew 11 percent in the interim period and this is after the group struggled for growth over the years. In fact the company has had a fair share of negative growth.

The company even talked about consumers trading up to premium brands for both its lager and sorghum categories. The growth is also not confined to the beer categories, but higher growth has also been recorded in the Maheu category where volumes grew by 19 percent for the six months.

Manufacturer National Foods also recorded an 18 percent growth in volumes in the first quarter of the year. We have also witnessed reasonable growth at clothing retailer Edgars where its revenue for the half year to July grew by 6,8 percent. A visit to grocery retailers, or building materials hardwares, also reflects brisk business as evidenced by long queues at any given time.

Similar trends have also been witnessed in the banking sector, where the increase in transaction fees points to a spending consumer. Steward Bank said its non-funded income had grown by a massive 112 percent to close the period at $24,1 million, all this on the back of a surge in transactional volumes, notably on Bank Cards, POS and Mobile Banking transactions. Its parent company Econet also reported a 17 percent increase in revenue to $352,7 million due to growth in EcoCash and non-voice revenues.

Other statistics that also speak to a growing economy or should we say liquid economy, is the growth that we have also seen in the insurance sector where the IPEC second quarter report shows that non-life insurance companies recorded a 9,25 percent surge in total gross premium written.

IPEC said the increase in total GPW was mainly driven by a growth in business generated from fire, hire purchase and motor insurance industries.
Where has the cash come from?

The question though is where is all this cash coming from when there is talk that the economy is struggling.

The first port of call could be that the country experienced improved disposable incomes driven by the agriculture and the mining sectors.
In the agricultural sector for example, farmers had been paid as much as $360 million by end of September 2017.

The gold mining sector, on its own, must have contributed significantly to the inflows in the hands of the consumer considering that gold exports for the first eight months of the year reached $677 million.

The country also has a reasonable diaspora base that supports with inflows. So these could be the sources of the increased liquidity that we are seeing in the economy.
The bulk of the money that is oiling this economy is, however, coming from the issuance of Treasury Bills (TBs).

In August this year, the RBZ reportedly said the stock of TBs and bonds in issue increased 28,2 percent to $2,5 billion at the end of June from about $1,9 billion recorded in April.

The market, however, believes that the stock is much bigger than what the RBZ is reporting. A ministerial statement presented in parliament by the former Finance Minister Patrick Chinamasa, had put the stock at of $3,3 billion as at 3rd March, 2017.
While some have since matured, we have heard that some have since been rolled over while a lot more have been issued. So it won’t be farfetched to attribute the increased liquidity and growth in volumes for some businesses to the money that has been injected into the economy through TBs.

While the market has expressed reservations over the overall impact of the continued issuance of TBs, which have led to a ballooning Government debt, we have to acknowledge that, the instruments have managed to counterbalance the deflationary period the country was experiencing for more than two years.

With business conditions deteriorating from 2014, consumers and businesses were cutting back on spending and investments. Disposable incomes were also coming down amid delayed payment of salaries and even retrenchments.
So the issuance of TBs, while it has its own short comings, has also managed to bridge the  reduction in demand through increased spending.

This has created jobs as some companies, seed houses for example, have increased their production capacity and in the process created jobs. Whilst our circumstances might differ with other countries, Governments the world over are known to use fiscal policies to stimulate demand.

An example of such an effort is the Economic Stimulus Act of 2008, in which the US government attempted to boost the economy by sending taxpayers $600 or $1 200 depending on their marital status and number of dependents.

Another example of government spending as expansionary fiscal policy is the American Recovery and Reinvestment Act of 2009. This effort was taken on in the midst of the Great

Recession and totalled $831 billion.
Is the issuance of TBs our own improvised expansionary fiscal policy?
Feedback: Twitter @kudzie_sharara


Please enter your comment!
Please enter your name here