Business / Economy
Mangudya in bid to woo investment
10 Feb 2018 at 09:52hrs | Views
CENTRAL bank chief John Mangudya this week left interest rates unchanged but moved to mop up excess liquidity in the market through the issuance of government paper through open market operations to support the value of the Real Time Gross Settlement money currently trading at a discount as high as 60% against the American unit on the parallel market.
His monetary policy statement on Wednesday suggested the central bank wants to lift production further from current levels, raise exports as the country's nostro balances run dry, restore confidence in the economy through embracing free market systems as evidenced by the partial liberalisation of foreign exchange rules for individuals and corporates. Broad money grew 47,97% from US$5,4 billion in November 2016 to US$8 billion in November 2017. The growth was reflected in increases in transferable deposits up 58,99% and negotiable certificates of deposit up 51,57%. Time deposits, however, declined by 1,18%.
RTGS balances increased from US$954 million in 2016 to US$1,7 billion in 2017 after government created money to cover government expenditure and honour maturities of government paper.
Mangudya said open market operations would commence this year. While banks' lending grew by 44,31% from US$7,5 billion in November 2016 to US$10,6 billion in November 2017, net credit to government accounted for 70,45% of the growth to a total US$6,2 billion, while credit to the private sector rose by 6,97% to US$3,7 billion.
The increase in credit to government reflects increased reliance by government on the banking sector to finance its budget deficit and further crowding out of the private sector. "The substantial increase in money supply is therefore a reflection of the expansionary fiscal stance which has continued to increase RTGS money from US$954 in 2016 to US$1,732 million in 2017," Mangudya said.
"The increase in the RTGS position was largely driven by increased government financing through the overdraft at the central bank and the issuance of Treasury Bills and Bonds, which increased from US$3,2 billion in 2016 to US$5,2 billion at the end of 2017."
Excess liquidity in the market triggered inflationary pressures that saw investors last year scurrying for safety in stocks and pushing valuations to unsustainable heights. The stock market has since started experiencing a correction thanks to a military intervention of last year.
Although Mangudya unveiled various measures to stimulate production and left interest rates unchanged, his policy seemed to gravitate towards merely complementing President Emmerson Mnangagwa's efforts to woo investors, an exercise that could help solve Zimbabwe's foreign exchange shortage.
His interventions come against a backdrop of foreign currency shortages, low capacity utilisation, and over-reliance on imports. The central bank hopes this will improve production and translate to exports and job creation. He also announced comprehensive policy measures to enhance financial stability and promote business confidence in the economy.
Mangudya said the central bank would enhance the Nostro Stabilisation Facilities to Support Foreign Payments by providing US$400 million as assurance that international remittances and individual foreign currency inflows received through normal banking channels are available for use when required by the owners and to meet the foreign exchange requirements for the importation of essentials. Zimbabwe is grappling with low exports and high imports, a situation that has seen the depletion of banks' nostro accounts.
He said there was also need to refine the operation of the Portfolio Investment Fund by ensuring that all portfolio investment inflows are ring-fenced to meet the outflows that will be processed by giving priority to capital before capital appreciation and dividends. "This policy measure is necessary to augment the current US$5 million that has been provided in the Fund as seed capital and to further provide assurances to investors that Zimbabwe is open for business," Mangudya said.
The central bank chief said he was working with the African Export-Import Bank to put in place a US$1,5 billion facility for the provision of guarantees amounting to US$1 billion to investments coming into the country and for liquidity support totalling US$500 million.
"Such guarantees and liquidity support are necessary to protect investors' funds from country risk and, in doing so, enhancing investor confidence," he said.
Mangudya said the central bank would introduce a 7% tax-free savings bond on non-resident transferable funds.
"In order to provide return on remittable funds currently held in Non-Resident Transferable Accounts in respect of in-country funds such as dividends and profits due to non-residents that cannot be immediately remitted as a result of the current foreign currency shortages, such funds can now be invested in tax-free savings bonds at a coupon rate of 7%. This compensation process is necessary to assure investors of returns on their idle funds seated at banks," he said.
In a bid to improve exports, the central bank introduced an Export Incentive Scheme for Horticulture, Cotton, Macadamia and Gold. Export receipts grew 36% in 2017 from the 2016.
"In order to enhance foreign currency inflows from tobacco and gold production, the tobacco input finance facility has been increased from the US$28 million disbursed in 2017 to US$70 million, while the gold support facility has been increased from US$74 million (disbursed to 255 entities) in 2017 to US$150 million," he said.
Mangudya also said the establishment of an Offshore Financial Service Centre was on the cards with the bank currently working on a legal framework to operationalise the establishment of an offshore financial service centre within the context of the Special Economic Zones programme. Among some of the measures announced on Wednesday, the threshold for the value of goods that can be exported by an individual without completing export forms, Form CD1, has been increased from the current US$1 000 to US$2 000. He said the central bank had created a desk to enable Zimbabweans in the diaspora to participate in the development of their country through mobilising investments into all sectors of the economy had increased.
His monetary policy statement on Wednesday suggested the central bank wants to lift production further from current levels, raise exports as the country's nostro balances run dry, restore confidence in the economy through embracing free market systems as evidenced by the partial liberalisation of foreign exchange rules for individuals and corporates. Broad money grew 47,97% from US$5,4 billion in November 2016 to US$8 billion in November 2017. The growth was reflected in increases in transferable deposits up 58,99% and negotiable certificates of deposit up 51,57%. Time deposits, however, declined by 1,18%.
RTGS balances increased from US$954 million in 2016 to US$1,7 billion in 2017 after government created money to cover government expenditure and honour maturities of government paper.
Mangudya said open market operations would commence this year. While banks' lending grew by 44,31% from US$7,5 billion in November 2016 to US$10,6 billion in November 2017, net credit to government accounted for 70,45% of the growth to a total US$6,2 billion, while credit to the private sector rose by 6,97% to US$3,7 billion.
The increase in credit to government reflects increased reliance by government on the banking sector to finance its budget deficit and further crowding out of the private sector. "The substantial increase in money supply is therefore a reflection of the expansionary fiscal stance which has continued to increase RTGS money from US$954 in 2016 to US$1,732 million in 2017," Mangudya said.
"The increase in the RTGS position was largely driven by increased government financing through the overdraft at the central bank and the issuance of Treasury Bills and Bonds, which increased from US$3,2 billion in 2016 to US$5,2 billion at the end of 2017."
Excess liquidity in the market triggered inflationary pressures that saw investors last year scurrying for safety in stocks and pushing valuations to unsustainable heights. The stock market has since started experiencing a correction thanks to a military intervention of last year.
Although Mangudya unveiled various measures to stimulate production and left interest rates unchanged, his policy seemed to gravitate towards merely complementing President Emmerson Mnangagwa's efforts to woo investors, an exercise that could help solve Zimbabwe's foreign exchange shortage.
His interventions come against a backdrop of foreign currency shortages, low capacity utilisation, and over-reliance on imports. The central bank hopes this will improve production and translate to exports and job creation. He also announced comprehensive policy measures to enhance financial stability and promote business confidence in the economy.
Mangudya said the central bank would enhance the Nostro Stabilisation Facilities to Support Foreign Payments by providing US$400 million as assurance that international remittances and individual foreign currency inflows received through normal banking channels are available for use when required by the owners and to meet the foreign exchange requirements for the importation of essentials. Zimbabwe is grappling with low exports and high imports, a situation that has seen the depletion of banks' nostro accounts.
He said there was also need to refine the operation of the Portfolio Investment Fund by ensuring that all portfolio investment inflows are ring-fenced to meet the outflows that will be processed by giving priority to capital before capital appreciation and dividends. "This policy measure is necessary to augment the current US$5 million that has been provided in the Fund as seed capital and to further provide assurances to investors that Zimbabwe is open for business," Mangudya said.
The central bank chief said he was working with the African Export-Import Bank to put in place a US$1,5 billion facility for the provision of guarantees amounting to US$1 billion to investments coming into the country and for liquidity support totalling US$500 million.
"Such guarantees and liquidity support are necessary to protect investors' funds from country risk and, in doing so, enhancing investor confidence," he said.
Mangudya said the central bank would introduce a 7% tax-free savings bond on non-resident transferable funds.
"In order to provide return on remittable funds currently held in Non-Resident Transferable Accounts in respect of in-country funds such as dividends and profits due to non-residents that cannot be immediately remitted as a result of the current foreign currency shortages, such funds can now be invested in tax-free savings bonds at a coupon rate of 7%. This compensation process is necessary to assure investors of returns on their idle funds seated at banks," he said.
In a bid to improve exports, the central bank introduced an Export Incentive Scheme for Horticulture, Cotton, Macadamia and Gold. Export receipts grew 36% in 2017 from the 2016.
"In order to enhance foreign currency inflows from tobacco and gold production, the tobacco input finance facility has been increased from the US$28 million disbursed in 2017 to US$70 million, while the gold support facility has been increased from US$74 million (disbursed to 255 entities) in 2017 to US$150 million," he said.
Mangudya also said the establishment of an Offshore Financial Service Centre was on the cards with the bank currently working on a legal framework to operationalise the establishment of an offshore financial service centre within the context of the Special Economic Zones programme. Among some of the measures announced on Wednesday, the threshold for the value of goods that can be exported by an individual without completing export forms, Form CD1, has been increased from the current US$1 000 to US$2 000. He said the central bank had created a desk to enable Zimbabweans in the diaspora to participate in the development of their country through mobilising investments into all sectors of the economy had increased.
Source - the independent
