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Golden Sibanda
Government has secured US$300 million from an external financial institution (name withheld) to supplement its $18 billion Covid-19 stimulus and economic recovery funding package.
Highly placed Treasury sources told Business Weekly that the Covid-19 response facility was “not plucked off thin air”, but a realistic figure for funding that is already available.
The external loan facility, will constitute almost 50 percent of the resources mobilised to give the economy fresh head start after the outbreak of Covid-19, which has killed over 266 000 and infected more than 3,9 million worldwide.
This dispels widespread speculation that the Government was going to print money for coronavirus response. Details about interest and tenure of the funding under the facility, will follow in due course.
“What should be made clear is that there will not be creation of any new money. This is funding from various sources (including a hard currency loan from a regional player) that is already available,” the Ministry of Finance and Economic Development source said.
Business Weekly is reliably informed that while the package is based on funding that is already confirmed, it remains a working figure and will likely be higher once its details are finalised by a technical committee.
Sources of the Covid-19 package comprise at least US$300 million regional loan facility, nearly $2,5 billion from the Reserve Bank of Zimbabwe productive sector facility, $1 billion from statutory reserves to be returned to banks for on-lending, $4,5 billion from State guarantees to companies and individuals and around $2,5 billion budget supplement.
“So, if you add the numbers you will see that the
funding, including US$300 million loan, gives you more than $18 billion and the full details will be known once the technical committee working on it is done,” the Treasury source revealed.
This comes as economists have applauded Government over the economic stimulus, recovery and social protection relief package as critical intervention that will avert total collapse of one of many economies across the world, battered by the Covid-19 pandemic.
Notably too, this comes after the Reserve Bank of Zimbabwe recently announced its first round of Covid-19 response measures, which entailed major cuts of key interest rate benchmarks to lower cost of borrowing to drive recovery and production.
Others were, however, skeptical although acknowledging the domestic resource funded intervention was the only way to ease the impact of Covid-19 as “we now know all pleas for external (IMF) financing were not positive”.
Zimbabwe was recently excluded from global countries that benefited from a half a billion US dollars International Monetary Fund (IMF) Covid-19 debt relief package, which the Fund said was meant to assist towards debt service relief of countries that owed it.
The IMF said its Covid-19 funding package was for debt relief to countries that owed the Bretton Woods institution and had debt obligations falling due in the next six months.
President Mnangagwa on May 1, 2020, announced an $18 billion Covid-19 stimulus and recovery package to support agriculture, working capital needs, mining, the SMEs industry, tourism sector, the arts sector, liquidity release from statutory reserves, the health sector, broad relief measures and food grants.
In what should allay fears of money printing Finance and Economic Development Minister Mthuli Ncube, said the funds would be mobilised from various sources.
Notably though, the Reserve Bank of Zimbabwe has pledged to maintain a stranglehold on inflationary broad money supply growth to keep inflation in check, and is aiming for a December 2020 annual inflation target of 50 percent or below.
Economists across the world believe Covid-19, a viral disease first detected in Wuhan, China, will sink the global economy into its first recession post 2008 and plunge the world wide economies to depths last seen pre-World War Two.
Covid-19 could likely cause yet another economic decline in Zimbabwe this year, which may throw off rails the economy from initial growth forecast of 3,5 percent in 2020 after drought and cyclones caused an estimated economic 6,5 contraction last year.
Economist Persistence Gwanyanya, said the multi-billion-dollar stimulus and recovery kitty would help ameliorate the full negative impact likely to be caused by Covid-19, whose full effect is yet to be ascertained.
“The stimulus package, whilst it appears inadequate to meet economy’s full requirements, will go a long way on averting total collapse of the economy.
“Covid-19 comes at a time when our economy is experiencing serious challenges and with high risk of falling deeper into the hole.
“Like in all other countries in the world, rolling out economic stimuli, it is the only advisable thing at the moment.
“We now need to be positive about Covid-19, as it presents us with an opportunity to take the reindustrialisation imperative seriously.
“We can no longer take this issue lightly as the world is going through serious structural change, which points towards home bias post Covid-19,” Gwanyanya said.
Zimbabwe has to take the reindustrialisation drive seriously and the rescue package is only the precursor of the stimulus packages that will be required going forward, he said.
“This is necessary to avert deeper crisis, which will manifest itself through mainly output and job losses, which have serious ramifications in the broader economy.
“However, the package should be managed judiciously to minimise the effects of unintended consequences of the same. Government should deal decisively with any form of corrupt tendencies around the facility.
“Measures should be taken to ensure that the facility is applied towards production rather than consumption otherwise it will stoke inflation” Gwanyanya added.
However, economic advisory firm, Deat Capital managing Nicky Moyo, while commending intervention by Government, warned the facility may have limited impact due to high inflation.
“Remember this looks like a supplementary budget more to catch up with original national budget on November 2019. Inflation is over 600 percent and exchange rate has collapsed to 1: 50 against the US dollar,” Mr Moyo opined.
Online Reporter