eBusiness Weekly
Golden Sibanda
The Government has issued a staggering $8 billion in Treasury Bills (TBs) since dollarisation in 2009 to fund its expenditure gaps, but this has inadvertently driven money supply and unsustainable demand for cash and foreign currency from banks, according to well-placed sources.
Business Weekly is also reliably informed that the $8 billion TBs used to plug the budget gaps as the economy floundered, were over the $1,6 billion overdrafts Treasury accessed from the central bank to finance budget overruns from inevitable public expenditure.
The Government’s stock of Treasury Bills (TBs) reached a whopping $2,079 billion in just the 2 years to March 2017 amid concerns public borrowing was beginning to crowd out private sector lending by local banks.
Specifically, the TBs were issued for RBZ debt assumption, Government expenditure, Zamco bad loans cleansing and capitalisation of State institutions.
The elephant in Mthuli’s “house”
Well placed Government sources and captains of industry said containing public expenditure will present the greatest challenge yet for new Finance and Economic Development Minister Professor Mthuli Ncube who urgently needs nifty strategy in order to rein in fiscal imbalances, incurred through TBs, to stabilise the domestic economy.
“Government stock of Treasury Bills in the economy (since dollarisation), which it has been using to fund its expenditure, is around $8 billion over and above the overdraft at the Reserve Bank of around $1,6 billion.
“The increase in money supply through excess expenditure means that Government is creating or printing electronic money, which is not matched by real dollars.
“By so doing, Government is putting pressure on banks, which are supposed to provide the physical dollars in exchange for the electronic dollars and exerting high demand on the foreign currency market due to high consumer spending attributable to the increased money supply,” a senior Treasury official said.
“As people are paid from the electronic dollars, demand for goods and services increases. While the foreign exchange receipts are also increasing, the rate of money creation is much higher than the increase in foreign receipts. There is need therefore to bring the two in harmony, thus the need to reduce fiscal imbalances to rebalance the economy.”
Already, over 96 percent of the $4,1 billion 2018 National Budget is expected to go to Government’s recurrent expenditure, leaning little for capital formation. As expenditure overlapped inflows, Government frequently turned to TBs, as inflows to the fiscas remain subdued.
Recently, Government increased salaries for the civil service, which further inflated the public service wage bill and may increase the propensity for alternative sources of funding such as borrowing through TBs.
Government has issued billions worth of dollars through TBs since dollarisation in 2009 to finance deficits emanating from disparities between revenues and expenditure.
Govt committed to cut on TBs
President Mnangagwa is on record, including when he recently opened a new session of Parliament, as saying fiscal imbalances had driven sustained serious demand for cash and hard currency, a situation which is now threatening the country’s otherwise stable and solid banking sector.
The President said Government would accelerate measures to stabilise the economy and part of the solution will be the creation of fiscal space, currency reforms, improved liquidity (cash) and enhancing availability of foreign currency as well as increasing the country’s investment attractiveness.
To bring sanity in the foreign currency market the President said the Reserve Bank had secured $500 million worth of external lines of credit to meet growing demand from both businesses and the general public.
“Some of the facilities shall be disbursed this week to meet the expanding demand by for foreign currency that continues to be sustained by fiscal imbalances, which my Government has great commitment to redress,” he said.
Industry wants Govt to cut expenditure
Captains of industry said fiscal imbalances were partly to blame for the wave of price increases being witnessed in the country due to oversupply of electronic dollars.
Confederation of Zimbabwe Industries president Sifelani Jabangwe said shortage of foreign currency, whose trade on parallel markets is driven by excessive liquidity from TBs fed RTGS money, was pushing prices up, as people scramble for hard currency, a cost traders price in their goods and services. He said this was a problem Government must urgently deal with
“What is causing volatility of rates on the parallel market are fiscal imbalances. The market now understands that the RTGS is not equal to the US dollar, it means even when you want to buy from a retailer, you cannot buy 1 for 1,” said Zimbabwe National Chamber of Commerce (ZNCC) chief executive Chris Mugaga.
He said information asymmetry on the parallel market for foreign currency had significant impact on the direction of currency exchange rates while untimed pronouncements by senior public officials on key Government policies also caused people to take positions and price risk in their products or services.
Some entities that hold large volumes of the Government paper have offloaded the securities on the market at discounts to meet pressing obligations, instantly releasing huge amount of liquidity into the market before dates of maturity, reflecting through ballooning real time gross settlement (RTGS) balances.
The total value of RTGS balances in the banking system far exceeds the available cash and physical US dollar currency banks are able to process on demand against an individual or organisation’s funded bank account.
“Fiscal imbalances are the major source of problems facing the economy. That is what the Minister of Finance needs to look at. About $10,5 billion TBs have been issue since dollarisation in 2009 and what happens when you have large balances in your account, straight away you go to the bank,” said a well place senior official within the Government.
Broad money supply jumps
Zimbabwe broad money supply increased in May to $8,5 billion up from $8,1 billion in April. Broad money supply increased from $6,2 billion in the same period last year, a year-on-year increase of 38 percent.
The annual growth rate of broad money was 37,98 percent in May 2018, representing a 5,27 percentage point increase from 32,71 percent registered in April 2018, signifying sustained growth in money supply due to excessive Government expenditure.
Reserve Bank of Zimbabwe Governor Dr John Mangudya has said, through TBs and overdrafts and other monetary obligations that increase bank balances “we are creating money in Zimbabwe, but not creating counterpart money from foreign currency.
