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SEVERAL years of meetings and proposals back and forth between the Government, the Reserve Bank of Zimbabwe and financial institutions culminated in a decision to assume the RBZ’s debt of US$1,35 billion.
As was noted in our story last week, the move to assume the central bank debt was a noble thing which will go a long way in boosting confidence in the banking sector and restoring the central banks’ lender of resort function.
The Government has taken a big step in the right direction as overall the most sensible approach is to strengthen key institutions, policies and functions. The RBZ is one such institution. Once strengthened and capitalised the RBZ is expected to engage in fruitful commercial relationships, which include the mobilisation of foreign lines of credit on behalf of commercial banks.
The tone has already been set by the Government while a big bonus by way of a change in leadership at the central bank following the departure of Dr Gideon Gono on Saturday, will assist in the successful implementation of Zim Asset.
The new governor should ensure that banks get back to their core business and the Government strikes a balance to ensure that banks hold enough capital so they won’t be too vulnerable to failure but still be open to penalties for any violations.
However, the downside to the move by Government is that they have piled more IOUs onto the already existing Government debt and have no capacity to pay. The Government needs to back it up with cash but as it is at the moment, there is little room to raise the funds. The fiscal space is too narrow.
Given that the risk of default with Government is high, parallel to this transaction the Government should now come up with a holistic plan of action regarding debt servicing and repayment. Without that plan, that lack of confidence will still exist rendering these Government securities worthless pieces of paper which no investor would be keen to hold onto.
This debt repayment strategy should also be in tandem with Zim Asset with realistic goals and targets. Maybe rather than focusing on an SWF maybe some of those dividends from these assets could be used as collateral security for these treasury bills, that is, treasury bills backed by future earning from the mines.
Mortgaging our assets yes, but what other solution is left for Zimbabwe? China has managed to keep its status as a net exporter because of its vast labour and fixing its currency vs the dollar.
In Zimbabwe we have neither and all we have are a wide variety of minerals. So why not fully use these resources to better the livelihoods of our citizens?
Overall it is important to note that economic recovery can only happen if banks with the RBZ in the forefront can rebuild public trust.
The next governor has to value the future; he or she has to see him/herself as a custodian of the institution, improving it before passing it along to successors.
The lack of trust and confidence is making the pace of the recovery much harder and the pain of the aftermath much worse bearing in mind that economies, the world over, rely on a good financial system and the financial system itself relies on trust.
Online Reporter