'Illicit cash dealings sabotage economy'

ZIMBABWE would not be having any cash shortages if individuals and businesses were depositing their money in banks for equitable circulation, Reserve Bank of Zimbabwe (RBZ) Deputy Governor, Dr Khupukile Mlambo, has said.

Addressing business executives during an economic seminar organised by the Seventh-Day Adventist Church Zimbabwe Union Conference in Bulawayo on Saturday, Dr Mlambo said the economy was being sabotaged by illicit cash dealings such as hoarding and externalisation.

He said Government's decision to introduce bond notes last year came out of a realisation that the bulk of foreign exchange injected into the market by RBZ was being externalised and not deposited back into banks.

While about $800 million is believed to be circulating in the economy, that money is not going back to the banking system due to hoarding.

"Cash has to circulate but we have a problem of people who are keeping bank notes in their homes. You hardly see any new notes being deposited," said Dr Mlambo.

"If everyone was banking their cash we would not be having this crisis. Because cash is not circulating banks do not have cash for withdrawals, especially those banks without clientele involved in exports. $800 million is taken out of the country illicitly every year."

He challenged businesses to exercise integrity and play their part in supporting economic development as opposed to blaming it all on Government. Dr Mlambo stressed the need to attract more investment, boost domestic production and increase exports so as to increase liquidity in the economy.

Dr Mlambo also acknowledged the negative impact of the mismatch between the bloated local RTGS account at about $7 billion deposits and the depleted nostro (foreign) account.

This, he said, has resulted in challenges in procurement of key raw materials by the productive sector and delays in critical foreign payments. Unbudgeted Government expenditure and payment of loan obligations have been blamed for fuelling this mismatch, experts have said.

Citing the biting liquidity challenges and the recent spate of price increases, business leaders quizzed Dr Mlambo on the sustainability of using the US$ while some claimed that Zimbabwe has essentially de-dollarised. Some demanded that Government re-introduces the Zimbabwean dollar to curb cash shortages saying the bond notes facility was not effective given the parallel market cross rate disparities.

The RBZ Deputy Governor, however, said the economic fundamentals were not yet conducive for Zimbabwe to have a local currency. He insisted that the bond note exchange rate to the US$ remains 1:1. He said Zimbabwe was not de-dollarising and reminded the gathering that bond notes were a derivative currency backed by the $200 million loan facility. Dr Mlambo said bringing back the local currency required wider stakeholder confidence and solid reserves supported by sound productivity.

"We've to build confidence because this is why the Zimbabwean dollar failed. Unless you have strong fiscal rules it is senseless to print a local currency in this environment. Right now no one trusts us to run a local currency," he said.

Asked on the need to reduce lending rates for businesses, Dr Mlambo said the RBZ was constrained as it has no control over interests rate given that it does not print any money. He, however, said the monetary authority can only use moral suasion to engage banks to reduce lending rates. The RBZ has succeeded in reducing lending rates to 12 percent from more than 23 percent in recent years.

The meeting was attended by a diversity of business executives from different parts of the country. Among them was Zimpapers board chairman, Mr Delma Lupepe, Mr Luxon Zembe, Mr Alvord Mabhena, Mr Dumisani Sibanda and small to medium enterprises players.