THE end of January saw the buttressing of the economic blueprint through presentation of the 2013 Monetary Policy Statement (MPS) which is expected to be in sync with both the National Budget and the Medium Term Policy statement (MTP).
Report by Byron Manuhwa
Further, in the past two weeks there were several symposiums on the state of various sectors of the economy. While these sessions are commendable, deeper fundamentals need to be addressed.
The financial sector is a critical player which is the epicentre of the economy and is a mere reflection of the macroeconomic fundamentals the country is exposed to.
It is a lubricant and hence is in need of policies that foster economic growth without disregard of the macro-economic environment.
The MPS ushers in a memorandum of understanding which aims at the restoration of discipline in the financial services sector. This discipline is itself a result of good corporate governance and policed by an active central bank.
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Institutions do not just wind up insolvent overnight, but rather go through a process which has tell-tale signs of troubled times ahead. The MPS also promises to rein in more regulations onto the financial sector such as the Microfinance Bill and the Banking Amendment Bill.
Hindsight will show that lackadaisical monitoring by the mother bank is in part to blame for the indiscipline in the fragile sector and one can only hope that mechanisms will be put in place to ensure that the central bank is equipped to fulfil its obligations.
As the economy opens up to regional integration, it is imperative to create an operating environment that allows for increased foreign direct inflows, which naturally will lead to reduced cost of capital.
Financial institutions make concerted efforts to establish external lines of credit in spite of the risk profile of the country at large. These credit lines, therefore, come with high risk premiums which are then passed on to the borrower or the client.
It is only prudent then for the financial institutions to practice caution on-lending in face of non-performing loans of over 12%, against recommended 5% threshold by Basel II requirements. The degree of non-performing loans remains high despite the sectorial mix of the loans and advances by banks owing to the unfavourable business environment.
It is increasingly difficult to operate an SME as indicated by the Doing Business 2013 economic report on Zimbabwe. The country is currently ranked 172nd, two positions down from 170th in 2012.
It is, therefore, mind-boggling how on the one hand local banks are obliged to adhere to Basel II, and on the other are mandated to extend their loan book to the informal sector whose economic statistics are not known.
To date there is no correct measure of the economic activity they generate. Whilst we are not advocating for their exclusion, cautious lending is encouraged as it minimises exposure.
It would be cumbersome, if not at all impossible, for banks to lend at least 30% of their loans and advances to the informal sector given their risk profile.
The growth of non-performing loans (NPL’s) is worrisome as statistics show that in the year ended, NPLs increased from 9% to 12%. According to some scholars, these increases may be an indication of impending bank crisis and so strategies need to be put in place to avert this scenario.
It is time to look for holistic solutions to the country’s economic sectors for the providence of long lasting solutions which ensure that economic recovery is guaranteed. The policymakers need to agree on the strategic direction of the economy and design policies which will enable the country’s ratings to improve.
It is of paramount importance to address the macro-economic fundamentals as they are the foundation upon which the economy grows. That way, the economy will have a chance to compete head-to-head with regional economies in 2015 and beyond as regional integration takes place.
Failure to address the above will dash our dreams of a $100 billion-dollar economy by 2030 and we will continue having pipe dreams that never come true.
It is time to rethink, refocus and confront those little parameters that will at least ensure that the youth have a brighter future in our motherland.