Economists applaud Time Bank’s proposal

introduce a scheme that would release US$5 billion for civil servants’ salaries.
The bank’s proposal, which has been forwarded to the Ministry of Finance, also proposes the settlement of Zimbabwe dollar accounts using the US$5 billion.
This is expected to restore confidence in the banking sector and attract money held outside the sector into the financial institutions.
Economist Takunda Mugaga hailed the idea as noble and practical given the current challenges in raising finance.
“I believe that the proposal is excellent but it needs a buy-in from all banks,” he said.
Another economist, Mr Rutendo Rutendo, said the proposal shows that there are Zimbabweans who are thinking outside the box.
“First and foremost, I would like to appreciate the effort that has been put in coming up with this proposal and this is what is required by this nation, people who actually sit down and take their time to come up with solutions to our problems.
“We are existing in extraordinary times and with the lack of support from multilateral institutions solutions have to come from within us as Zimbabweans like the proposal has been tabled here,” he said.
He added that the proposal was practical but required commitment to ensure that it is implemented fully.
“From what I have seen the facility can work and the good thing is that it is not inflationary as the money raised is paying civil servants. Effectively they are being paid for their labour or service that has already been provided,” he said.
“I just hope that the powers that be see merit in the proposal and that there will be commitment to its implementation if it’s adopted,” he said.
The proposal by Time Bank is premised on the fact that Government approaches banks to raise the US$5 billion with Time Bank as the lead bank after creating the fourth money (near money), which is part of the proposed M4 category of money.
This will be an additional category to the three that are in existence in the country at the moment. There is the M1 (liquid money comprising notes, coins plus all demand deposits and M2 (comprising all the elements in M1 plus all other short-term and medium-term deposits with banks with a tenor of less than 90 days.
There is also the M3 (combination of Ml, M2 plus all long-term deposits with banks with tenors less than six months).
The money will then be credited to civil servants’ accounts and drawn as and when cash becomes available at different banks with Government issuing Treasury bonds, which have a long-term tenure to secure the loans.
To activate the process, according to Time Bank, civil servants or the Zimbabwe dollar depositors would be required to open a time deposit account with any of the participating banks.
This also has the net effect of triggering activity on the inter-bank market. Banks without money can borrow from other banks with money using the Treasury bonds.
In this regard, Time Bank – as the lead bank – would urge participating banks to securitise the Government debt and trade it on the inter-bank market, thereby improving liquidity on the inter-bank market.
According to the proposal this would actually enable Government to offer increased or better salaries to civil servants as it does not have to contend with the hassle of looking for money as is the case at present.
The civil service has been calling for a salary review with Finance Minister Tendai Biti refusing to budge insisting that Government had no money to finance any increases as it is already overburdened with the responsibility of financing its already bloated wage bill.
The terms of the money raised or syndicated loan include a tenor period of 10 years with interest payable half-yearly at an interest rate of 8 percent per annum.
The loan is subject to an arrangement fee of 2 percent and an annual syndicate management fee of 0,5 percent. In terms of repayments, the proposal suggests that Government should set up a sinking fund with Time Bank where deposits will be made into the account over a 10-year period in preparation for settlement of the 10-year Treasury bills/bonds.
The fund will earn interest of 5 percent per annum and can be used to redeem TBs should a holder opt for early payment.