Zimbabwe’s estimated money supply shortfall will force the authorities to push bond notes above the $200 million facility guaranteed by the African Export-Import Bank (Afreximbank), a leading research firm has said.
BY TATIRA ZWINOIRA
Bond notes were introduced on November 28 as an export incentive scheme.
In its latest report, BMI Research said the estimated money supply shortfall of $2,5 billion would force the country to go above the $200 million cap.
“Estimates on the shortfall in Zimbabwe’s money supply reach as high as $2,5 billion, which will continue to weigh on price growth even under a more rapid expansion of bond note issuance. We believe this will increase the likelihood of the government extending the bond note supply beyond current $200 million cap,” BMI Research said in a Africa Monitor Southern Africa newsletter issue 4 for April 2017.
“. . . there has been very little transparency on the terms under which it [bond notes] was issued. If the government is indeed printing the notes, rather than any third party, there is little to stop them from simply printing more than the $200 million value supposedly underwritten by Afreximbank to narrow the shortfall in the money supply.”
Monetary authorities have, in the past, said they would not print bond notes of more than the $200m Afreximbank facility.
BMI Research said the poor quality of the notes themselves begged the question whether they were being printed from a trustworthy source.
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Currently, the bond notes in circulation are worth $102m.
The growth in bond notes has accelerated the disappearance of the United States dollar from the formal system, with companies resorting to the black market to raise the foreign currency required to finance the importation of critical raw materials.
Current withdrawal trends have shown banks giving depositors more bond notes than dollars.
In fact, some banks are giving clients their withdrawals entirely in bond notes in what appears to be banks desperately trying to hold onto the greenback.
BMI said fiscal pressures would play a role in influencing how large the bond note programme gets over the coming quarters.
“Deposits that had been made in US dollars face being withdrawn in bond notes, with the dollar deposits feeding depleted government revenues via the central bank,” the research firm said.
“With economic growth likely to remain weak in 2017, and an election campaign to fight in 2018, replacing the US dollars in peoples’ bank accounts with fiat money is an effective way of collecting revenue for imported goods and services, as well as paying off its arrears with various creditors.”
BMI Research said despite the pace of implementation of bond notes they did not anticipate a sufficient increase in the money supply to trigger a return to high levels of inflation.
The firm that provides macroeconomic, industry and financial market analysis, covering 24 industries and 200 global markets.
