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RESERVE Bank of Zimbabwe (RBZ) governor John Mangudya is expected to present his 2015 monetary policy statement (MPS) next meek, amidst growing restlessness in an economy plagued by a worsening liquidity crisis. Mangudya last week said he would not experiment with the economy and people’s lives during his tenure but would find ways to spur economic growth, saying the economy was shrinking largely due to indiscipline by Zimbabweans.”I would rather experiment in a laboratory than in an economy,” Mangudya said.

Some of the challenges facing the economy include unreliable power supplies, corruption, lack of transparency, low capacity utilisation in industries and lack of competitiveness for locally manufactured products. Mangudya said mining, tourism and agriculture were the three sectors key to driving Zimbabwe’s economic growth, and that the RBZ would come up with measures to buttress these sector’s efforts to boost the economy. The monetary policy will be Mangudya’s second since he assumed the central bank’s governorship in May last year, succeeding Gideon Gono who steered the ship during the country’s tumultuous period of hyperinflation.

The country is saddled with a huge debt overhang which will continue to undermine the country’s ability to attract offshore credit at competitive rates. Zimbabwe’s foreign and domestic debt is estimated to be about US$8 billion. Economists said given the current situation where the country was using a basket of foreign currencies as legal tender, not much was expected from the monetary policy as the RBZ had become feeble on account of lack of the country’s own currency to influence monetary policy. Economist, Takunda Mugaga, said it was important to note that Mangudya had very little or no room for manoeuvre because of the inability of the central bank to print money and influence interest rates and other monetary policy issues.

But he said he had to had to urgently deal with the lack of confidence in the banking sector by ensuring that frail institutions still operational were either closed or downgraded to lower tier financial institutions with lower capital requirements.

“He just has to take action on those banks with thin capital levels by classifying then in the three tier levels he introduced last year. Those which cannot meet the US$100 million framework should have their banking licenses revised,” he said.

Mugaga said Mangudya should relax export requirements and also deal with the non performing loans that have brought down most banks.

“All banks should have provided full details of their non performing loan status by now,” he said, indicating that this should pave way for the assumption of these debts by a newly created vehicle, the Zimbabwe Asset Management Corporation (ZAMACO), which is taking over NPLs from the sector.

The RBZ formed ZAMACO to acquire NPLs from banks to clean up and strengthen banks’ balance sheets to enable them to attract new funding and boost the liquidity to fund projects to help grow the economy. ZAMACO has taken over about US$60 million from a number of banks.

Economist, Joseph Sagwati, said the monetary policy was likely to be a dump squib due to the limitations Mangudya was facing from a hard currency economy.

“I say so because the Reserve Bank abdicated the role of a monetary authority when it lost both the lender of last resort function and the printing press,” he said.

The RBZ was expected to resume its lender of last resort role by December after a then-expected injection of US$100 million by the Afreximbank. Finance Minister Patrick Chinamasa had announced the planned US$100 million facility to resuscitate the interbank market, which went away with dollarisation of Zimbabwe’s economy in 2009 when the country ditched its own defenceless currency, in March last year. The primary objective of the facility, which would have marked the resumption of the RBZ’s lender of last resort role, was to unlock deposits held by banks with surplus cash and make them available for those banks with short term liquidity challenges.

By so doing, he said, the liquidity lying idle would be used to stimulate the interbank market. This would boost the circulation of the money in the system, and alleviate liquidity challenges in order to promote the proper functioning of the economy and the stability of the financial markets. Mangudya is expected to explain the reason for delays in implementing this facility, as well as map the way forward for its resumption. Sangwati said Zimbabwe was not going to achieve a growth rate above 1,2 percent this year because industry was dead and no production was taking place.

“If we achieve a growth rate above 1,2 percent, we would have done extremely well. Inconsistent policies in terms of pricing result to anti-growth. As a country we depend on minerals whose global prices are depressed, suppressing our growth. Corruption on national assets like land has resulted to a lot of squabbles which spill to courts instead of producing on the land,” he said.

Economist John Robertson said the real problem in the country was scarcity of money due to lack of foreign direct investment. “As a country we need to come up with consistent policies that attract investment to improve foreign direct investment and production,” Robertson said.

Some analysts said Mangudya should revise lending rates being quoted by banks which still remained high, against the backdrop of deep-seated liquidity shortages as a consequence of limited access to external credit lines and aerse balance of payments developments. The lending rates also reflected high premiums charged by some banks, irrespective of their cost structures. Consequently, expectations are for an expansionary policy in the hope that the resulting credit rates would help stimulate economic growth.

Economist, Chris Mugaga, said the monetary policy should impose strict discipline on struggling banks and instil confidence in the financial sector. He said struggling banks should not be allowed to wobble because in the medium and long term, this would hurt public confidence which is already at an all-time low.

Source : Financial Gazette

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