Liquidity crisis to persist

not moved to introduce long-term investment instruments such as Treasury Bills that could help ease the liquidity crunch.
Bank deposits have increased from an average of US$200 million in February 2009 reaching US$3,3 billion last month, but the economy still remains illiquid.
This has spawned high cost of funding and deprived local companies and all productive sectors of the economy funding to raise output and productivity.

Confidence remains warped despite efforts taken to restore it over the last three years amid suspicion more money is circulating outside the formal banking system.
Three quarters of Zimbabweans workers in the informal sector do not bank their money for reasons such as high bank charges and lack of confidence.
CBZ Bank managing director Mr John Mangudya told The Herald Business that Government needed to take certain simple initiatives to ease liquidity constraints.
“There are certain things we have advised the Government to do in order to solve liquidity problems in the economy, but these have not yet been done. We said they should introduce long term

Government paper such as Treasury Bills, which banks would use as security when borrowing,” said Dr Mangudya.
It was unfortunate, Dr Mangudya said, that Government took long to implement such small but big impact initiative that could drastically change things.
He said financial intermediation was the lifeblood of any economy and bold decisions should be taken without wasting time to turnaround the economy.

But he stressed the starting point should be Government stock, which would unlock financial inflows from the central bank’s as a lender of last resort.
This also comes amid revelations banks can not utilise the central banks US$7 million meant to help the apex bank resume its lender of last resort function.
Banking sector sources said there was no prudent security against which they could access the funding from the central bank.

They contend it was not possible to use title deeds to obtain the little funding from the apex bank.
Securities Commission of Zimbabwe chairperson Mrs Willia Bonyongwe recently said the country needed to move with speed, exploit its potential and develop more active capital markets to ease the liquidity crisis.

“Capital markets innovation is key to transform this vast wealth into investment that can unlock global funding (inflows into Zimbabwe),” she said.
It was critical that Government also took measures to restore confidence in the economy shattered during economic instability.
This would entail, to start with, reimbursing banks still owed by the Reserve Bank of Zimbabwe that compelled banking institutions to surrender a portion of their daily deposit receipts in the form of statutory deposits.

Local banking institutions are owed about US$80 million in statutory deposits collected by the central bank. Banking institutions contend that if the statutory deposits were reimbursed their current liquidity positions would improve significantly overnight.
But more importantly this would go a long way in helping to mend the warped confidence in the banking sector, which informal businesses have avoided.

And it was this shattered confidence in the domestic banking system that has also resulted in the country’s interbank market system failing to resume.
An interbank market allows banking institutions to extend overnight credit to each other to cover daily short falls without resorting to the RBZ.

Very few if any, banks are lending to each other these days for fears the other bank might find itself in a situation where it will not be able to repay.
To complement financial intermediation by banks Government needs to develop capital market platforms for equity and quasi equity finance, bond finance, debenture funding, asset securitisation and hedge commodities.