Business / Economy
IMF raises red flag over Zimbabwe cash crisis
16 Jul 2017 at 14:32hrs | Views
The International Monetary Fund (IMF) has blamed Zimbabwe's unrelenting cash shortages on government's runaway spending and a comatose economy.
IMF's outgoing mission chief for Zimbabwe Anna Lucia Coronel, speaking after the fund's recently concluded country consultations, said the Reserve Bank of Zimbabwe's cash reserves were critically low.
The IMF delegation held consultions with President Robert Mugabe's chief secretary Misheck Sibanda, Finance and Economic Development minister Patrick Chinamasa and RBZ governor John Mangudya, among other senior government officials.
Cash shortages, that began to intensify in 2015, were some of the issues that were discussed at length.
"We understand that the dollar holdings of the economy as a whole are low," Coronel said.
"Dollars come to Zimbabwe as a result of export proceeds, remittances, foreign investment, and all other external inflows, and these inflows have been limited.
"Furthermore, dollar reserves of the central bank are scarce, and the central bank can only allocate the amount of cash that it has, and it does so as per priority list."
She said the IMF's advice on cash shortages was that the government must cut down on its expenditure and open the economy to investors.
"It is clear that the demand for cash currently outstrips the amount of cash flowing into the banking system and all banks are being rationed to varying degrees. Our advice is twofold:
"First, there is an urgent need to open Zimbabwe for business by levelling the playing field to all investors and having clear rules of the game so that inflows of dollars could be attracted and the potential of the economy could be exploited," Coronel added.
"Second, the government should simply spend less, so that the private sector can have more."
RBZ has been reducing its allocation of cash to banks, forcing many financial institutions to reduce further their maximum withdrawal limits to as little as $20.
Three commercial banks in Harare last week told Standardbusiness that the RBZ had virtually stopped supplying them with cash, including in bond notes.
"We have not been giving depositors much cash lately but it is not our fault," a branch manager at one of the banks said.
"The Reserve Bank is not giving us cash so we are relying only on the cash that we receive from deposits to give out withdrawal demands.
"The problem is also that clients are coming to withdraw cash and not bringing it back
"On the days that we do get cash deposits, it comes mainly in bond notes."
In her half year report for 2017 released last week, Zimbabwe Revenue Authority (Zimra) board chairperson Willia Bonyongwe said the RBZ reported that banks were now holding on to a meagre 2% of cash reserves against a benchmark of 15%.
As such, the levels of available cash were seriously lower than what the central bank and banks had been reporting to the public.
An Office of the President and Cabinet ease of doing business consultant and economist, Ashok Chakravati said there could be billions of dollars that people were keeping out of the banking system.
Although Mangudya did not respond to calls made by this paper, he is on record saying last week that there was no justification for banks to deprive depositors of cash because they received a huge chunk of the export receipts.
In the first half of the year, banks reportedly received 71,42% of the $2,8 billion of foreign currency, a scenario that would suggest that financial institutions are in control over most of the cash in the country.
According to one commercial bank official who chose to remain anonymous, banks are liquid but that liquidity is in three forms, namely, actual deposits, real time gross settlement (RTGS) transactions and treasury bills.
However, despite the high levels of liquidity, the money was not translating into hard cash due to depositors demanding cash yet the banks would have received plastic money.
"Electronic systems are efficient as can be seen by Paynet which is used by most companies for electronic transfers of salaries into employees' respective banks.
"Paynet issues instructions to banks to say pay "so and so" but all this being electronic money.
"The challenge comes when after the electronic transfer of the salary is done by Paynet the employee wants cash from the bank when all the bank would have received is an electronic transfer," the official said.
"Banks actually have millions of dollars and we have only just been experiencing these challenges in the last two or so months unlike other banks which were affected last year."
The official said the fact that transactions done through RTGS, ZIPIT, EcoCash, Telecash and One Wallet, among other electronic platforms were being executed without hitches showed there were good levels of liquidity within the banks.
When Standardbusiness made enquiries with the Bankers Association of Zimbabwe to find out why banks were only dispersing cash as per deposits they would have received, the BAZ's response was:
"Please confirm which banks you have surveyed so we can check with them? It is possible that this could have been peculiar to a particular bank and may not be a market wide phenomenon".
IMF's outgoing mission chief for Zimbabwe Anna Lucia Coronel, speaking after the fund's recently concluded country consultations, said the Reserve Bank of Zimbabwe's cash reserves were critically low.
The IMF delegation held consultions with President Robert Mugabe's chief secretary Misheck Sibanda, Finance and Economic Development minister Patrick Chinamasa and RBZ governor John Mangudya, among other senior government officials.
Cash shortages, that began to intensify in 2015, were some of the issues that were discussed at length.
"We understand that the dollar holdings of the economy as a whole are low," Coronel said.
"Dollars come to Zimbabwe as a result of export proceeds, remittances, foreign investment, and all other external inflows, and these inflows have been limited.
"Furthermore, dollar reserves of the central bank are scarce, and the central bank can only allocate the amount of cash that it has, and it does so as per priority list."
She said the IMF's advice on cash shortages was that the government must cut down on its expenditure and open the economy to investors.
"It is clear that the demand for cash currently outstrips the amount of cash flowing into the banking system and all banks are being rationed to varying degrees. Our advice is twofold:
"First, there is an urgent need to open Zimbabwe for business by levelling the playing field to all investors and having clear rules of the game so that inflows of dollars could be attracted and the potential of the economy could be exploited," Coronel added.
"Second, the government should simply spend less, so that the private sector can have more."
RBZ has been reducing its allocation of cash to banks, forcing many financial institutions to reduce further their maximum withdrawal limits to as little as $20.
Three commercial banks in Harare last week told Standardbusiness that the RBZ had virtually stopped supplying them with cash, including in bond notes.
"We have not been giving depositors much cash lately but it is not our fault," a branch manager at one of the banks said.
"The Reserve Bank is not giving us cash so we are relying only on the cash that we receive from deposits to give out withdrawal demands.
"The problem is also that clients are coming to withdraw cash and not bringing it back
"On the days that we do get cash deposits, it comes mainly in bond notes."
In her half year report for 2017 released last week, Zimbabwe Revenue Authority (Zimra) board chairperson Willia Bonyongwe said the RBZ reported that banks were now holding on to a meagre 2% of cash reserves against a benchmark of 15%.
As such, the levels of available cash were seriously lower than what the central bank and banks had been reporting to the public.
An Office of the President and Cabinet ease of doing business consultant and economist, Ashok Chakravati said there could be billions of dollars that people were keeping out of the banking system.
Although Mangudya did not respond to calls made by this paper, he is on record saying last week that there was no justification for banks to deprive depositors of cash because they received a huge chunk of the export receipts.
In the first half of the year, banks reportedly received 71,42% of the $2,8 billion of foreign currency, a scenario that would suggest that financial institutions are in control over most of the cash in the country.
According to one commercial bank official who chose to remain anonymous, banks are liquid but that liquidity is in three forms, namely, actual deposits, real time gross settlement (RTGS) transactions and treasury bills.
However, despite the high levels of liquidity, the money was not translating into hard cash due to depositors demanding cash yet the banks would have received plastic money.
"Electronic systems are efficient as can be seen by Paynet which is used by most companies for electronic transfers of salaries into employees' respective banks.
"Paynet issues instructions to banks to say pay "so and so" but all this being electronic money.
"The challenge comes when after the electronic transfer of the salary is done by Paynet the employee wants cash from the bank when all the bank would have received is an electronic transfer," the official said.
"Banks actually have millions of dollars and we have only just been experiencing these challenges in the last two or so months unlike other banks which were affected last year."
The official said the fact that transactions done through RTGS, ZIPIT, EcoCash, Telecash and One Wallet, among other electronic platforms were being executed without hitches showed there were good levels of liquidity within the banks.
When Standardbusiness made enquiries with the Bankers Association of Zimbabwe to find out why banks were only dispersing cash as per deposits they would have received, the BAZ's response was:
"Please confirm which banks you have surveyed so we can check with them? It is possible that this could have been peculiar to a particular bank and may not be a market wide phenomenon".
Source - the standard
