South African research firm, Emergent Africa, has warned the Reserve Bank of Zimbabwe against financing fiscal imbalances using Treasury Bills (TBs) and overdrafts, saying this had negative consequences on the country’s overall macro-economic stability.
BY TATIRA ZWINOIRA
The firm, in its Zimbabwe: A Return to Normalcy report released recently, said the unrestrained issuance of TBs was unsustainable.
“Fiscal imbalances are being financed through issuance of Treasury Bills and overdrafts with the RBZ, with destabilising consequences on overall macro-economic stability. As the Ministry of Finance and Economic Development acknowledges, the current trend and manner of issuance of Treasury bills is unsustainable, and has not only led to mounting interest payment obligations, but now threatens macro-economic instability,” the firm said.
“In the last five years, domestic debt has risen by over 1 400% from $442 million to $6,3 billion — the fastest in the history of the country. Unrestrained issuance of Treasury Bills has widened the gap between value of virtual money (RTGS) and available United States dollars. The result has been exchange premiums that inflate local prices of imported goods.”
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Government has been issuing TBs to fund its programmes over the past few years as a stop-gap measure since it no longer has access to investment from international financial institutions due to its legacy debt.
The biggest takers of the TBs are banks who have now been left exposed to potential debt of government since it has limited resources.
A parliamentary analysis of the 2018 Monetary Policy Statement done earlier this year indicated that banks have not been as supportive of the private sector due to de-risking and reduced lending in favour of less risky TBs.
Parliament warned that the austerity measures enunciated in the 2018 National Budget statement, including adherence to 20% overdraft threshold as provided for in the RBZ Act and minimising deficit financing through TBs, needed to be heeded.
This was in order to keep “national debt below the statutory limit of 75% of the gross domestic product. TBs and bonds peaked to US$5,2 billion in 2017 from US$3,2 billion the previous year while overdraft on RBZ was in excess of US$600 million”.