SDRs, offshore remittances boost liquidity

US$110 million from the IMF Special Drawing Rights had played a significant role to this end.
“Many of you will confirm that there has been a significant improvement of liquidity in the economy. Part of the thing that has helped is the US$110 million we injected in the economy from our SDRs,” he said.
IMF SDR funds were used to support infrastructure projects (water and sanitation), the Reserve Bank of Zimbabwe, agriculture and industry.
The Bankers Association of Zimbabwe could not be reached for a comment. But an economist with a local bank confirmed that liquidity had improved.
“Liquidity has improved due to the remittances from the Nostro accounts. Over US$200 million was expected from offshore accounts. There actually is fear this may lead to a decline in interest rates,” said the economist.
Other measures taken to improve liquidity in the economy included monetising US$83 million statutory reserves the central bank owes local banks. The statutory reserves were converted into secured Treasury bills. Treasury also injected US$27 million for the Reserve Bank lender of last resort functions, while US$3 million would be added for the same purpose.
“We have already issued the Treasury bills, which have monetised the US$83 million statutory reserves,” he said. “We are also working on the restoration of the lender of last resort. Government has put in US$27 million, US$7 million from the 2011 Budget and US$20 million we have withdrawn from our SDRs. We will give them an additional US$3 million to make it US$30 million,” said the minister. Government is also in the process of creating a Special Purpose Vehicle that will allow shareholders to invest in it to raise funding.
Minister Biti expressed hope the SPV will be operational in a few weeks’ time. Work is already underway for an operational framework for the SPV.
The Special Purpose Vehicle is part of overall efforts the Government has taken to mobilise resources for the RBZ’s lender of last resort function.
Furthermore, significant progress has been made in the repatriation of Nostro account balances in the banks’ offshore account balances. Minister Biti said a total of US$260 million has been remitted to the RBZ RTGS account. Banks were directed, through exchange directive RN32, to remit 75 percent of all funds in Nostro accounts domiciled in offshore banking institutions.
Prior to the directive, local banks had in excess of US$350 million in Nostro accounts while the economy buckled under severe liquidity constraints.
The liquidity crisis worsened over the festive season last year, resulting in some banks failing to process RTGS transfers as high value transactions increased abruptly. After Government managed to resolve the liquidity crisis, focus has now fallen on high interest rates constraining firms’ borrowing capacity.
“We are now working on reducing the interest rates, which have been hovering around 20 percent and in some instances 40 percent. We are now working to bring them to below 20 percent,” said Minister Biti.