Oldtent Archives 2007 - 2008

The rise in government domestic debt levels, which is now being kept
secret by the Reserve Bank, was sparked by huge interest payments which
account for $822 billion of the total debt.
The debt has been ballooning because of the Reserve Bank’s advances to
government, largely for the March 29 and June 27 presidential elections,
agricultural mechanisation programme and food imports.
“The stock of government domestic debt by mid July stood at $1,064
trillion, reflecting an increase of 1,3 million from $79,6 million,
according to official figures obtained from the Reserve Bank on Wednesday.
With government’s continued reliance on borrowing from the local
market, domestic debt is estimated to be nearing $100 trillion.
The mismatch between fiscal revenues and expenditures also opened a
significant funding gap resulting in government utilising the overdraft
window at the Reserve Bank, while at the same time borrowing from the
domestic debt.
According to the Reserve Bank, as of July 31 cumulatively, since the
beginning of the year government raised 365-day treasury bills amounting to
$$21,1 of which 995 or $21 million was raised between April and July.
The RBZ advances to government have over the past five years accounted
for about 80% of total debt, a situation bank economists say is evidence
that government was broke and had no other source of revenue other than the
domestic market.
Figures from the RBZ show that the solvency of government was already
seriously compromised with the current interest rates, and technically
government finances will not be better off with even a 1% rise in interest
rates.
The increasing government debt stock raised fresh fears of renewed
turbulence in the crisis-strapped economy, battling with high inflation
currently at 231 million %.
The surge in domestic debt was the result of high interests on the
market which were in line with the inflation rate.
Government has also been forced to rely on domestic borrowings because
their tax revenue base has dwindled because of company closures which have
led to retrenchments. This means that in real terms, the government is
collecting less revenue through corporate and income tax.
During the last monetary policy in July, Gono said the Reserve Bank
had remained the major holder of government domestic debt at 95% of the
total amount.
Analysts say the debt stock was likely to rise further on increased
borrowing by government to finance the import of wheat and maize,
electricity, civil servants’ salaries and sustain the Basic Commodities
Supply Side Intervention (Baccosi).
“Commercial banks accounted for about 99% of the monetary banking
sector’s holding of domestic debt. This is attributed mainly to banks’
active participation in Open Market Operations,” said the Reserve Bank.
The major effects of rising government debt would be an escalation of
the inflationary rate because of increased recourse to the domestic market
for funding.
With inflation at 231 million % government’s huge appetite for cash is
also likely to spur increased money printing, pushing money supply growth
upwards.
The fact that Zimbabwe has no access to international capital has only
aggravated the situation.
“The figure has a huge bearing on the returns that investors will be
getting from the money market. The money market is bound to continue issuing
investors with negative returns in the short-term to minimise the harmful
effects of the huge interest cost component on the debt figure,” an
economist with the central bank told businessdigest.
Meanwhile the Reserve Bank has kept the lid on the money supply (M3)
figures. The official figure to date is 420 867,4% for April. Economic
analysts this week said the figure could be nearing 150 million % after Gono
introduced 21 new denomination notes this year alone.
Annual broad money supply growth has maintained an upward trend since
November 2003 reflecting the inevitable Reserve Bank’s intervention to
stimulate the supply side of the economy in the absence of external support.
Official figures from the Reserve Bank show that on an annual basis
domestic credit grew by 482 460,9% for April, largely driven by growth in
credit to the private sector - 412 919,7%, credit to government - 734
013,7%, and claims on public enterprises - 216 066,7%. The Reserve
Bank has published the latest figures.
Credit to government has largely been from domestic banks because of
the drying up of external lines. Lenders in the domestic market no longer
have the capacity to meet the needs of government.

HARARE, October 24, 2008 - ZIMBABWEAN banks have started looping off
six zeroes from the currency to accommodate the growing number of digits
amid revelations the central banking is working of new reforms in the
banking sector.

Banking industry sources said on Friday Reserve Bank of Zimbabwe
(RBZ), Gideon Gono, would next week make an official announcement on new
reforms in the sector, among them an increase in the current daily cash
withdrawals and cheque limits.

Stanbic Bank, one of the 14 commercial banks operating in the country,
on Friday put our a circular informing its customers that with effect from
Monday next week, it would remove six zeroes from all accounts.

“With effect from 27 October, 2008 account balances with the bank will
be re-dominated with figures rounded off to the nearest 1, 000, 000 as a
work around solution,” read part of Stanbic Bank circular given to customers
as they queued to withdraw Zd 50 000, the daily cash limit.