Banks plan crumbles

LIVINGSTONE MARUFU

A plan by local banks to force the Reserve Bank of Zimbabwe (RBZ) to loosen its tight monetary policy stance to avoid a possible economic and financial crisis appeared to have crumbled after the central bank resisted the move by the lenders.

It comes after the two parties held a series of crisis meetings a few weeks ago to try and find a lasting solution to the painful liquidity crunch, which could potentially hamper the upcoming summer cropping season.

Bankers Association of Zimbabwe (BAZ) CEO, Fanwell Mutogo, told Business Times that the central bank would continue with its monetary stance.

“The outcome of our meetings was that RBZ will continue with its tight monetary policy stance. The banking sector was told to work within the stipulated monetary framework,” Mutogo said.

He said banks are facing the heat now.

Well placed government sources told Business Times that the central bank governor, John Mangudya (pictured) was under severe pressure from the governing party big wigs and top officials in government for the economy to get to next year’s harmonised elections with some stability, which is crucial for President Emmerson Mnangagwa and his administration.

“One of HE’s [Mnangagwa] trump cards is to go to the 2023 watershed elections with a stabilised economy and show the electorate that he has what it takes to turn around the economy hence the current gear will be maintained.

“Mangudya is the man to do the job and I don’t see him diverting from that despite huge calls from the banks, industry and farmers,” one government source told Business Times this week.

The Confederation of Zimbabwe Retailers president Denford Mutashu said the liquidity squeeze has taken a toll on businesses, leaving them on the edge.

“Businesses cannot borrow at 210% as there are few businesses that can borrow at that rate hence the economy will remain stagnant.

“The tight monetary move is a double-edged sword as it also shuts the door on companies that might need money for expansionary and growth programmes, or to genuinely sustain their businesses,” Mutashu said.

Bankers feared that late financing of the agriculture sector could throw the season preparations into disarray, resulting in subdued output.

The banks said the cash crunch, triggered measures that resulted in the mopping of excess liquidity in the market as part of efforts to contain volatile exchange rates and rising annual inflation, have upset markets.

Mutogo said the current situation could also paralyse the agriculture sector and business.

The government has identified the agriculture industry, alongside mining as the anchors of Zimbabwe’s economic turnaround.

Mutogo said the liquidity situation remains challenging and banks are worried more for the farmers as this is the financing period for them.

He said there was a need to quickly come up with a solution as agriculture remains the mainstay of the economy.

If delayed, this could have severe consequences for other industries like the manufacturing sector.

The banker said financial institutions were finalising the budgets for the summer cropping season as the liquidity crunch is restricting them to finance the sector.

“There are some budgets we have but the amounts are limited given the circumstances and the capital-intensive nature of the agriculture sector,” Mutogo said.

He said the central bank’s tight monetary stance has choked the economy and left most businesses on the brink.

BAZ said the 2022/2023 summer cropping season has already kicked off with irrigated crops already planted. It warned that the desired agriculture growth would be difficult to achieve with the liquidity squeeze in the market.

As an agro-based economy, agriculture performance is key to economic growth hence if the sector doesn’t perform well, this will affect next year’s economic projections.”

Experts said the tight monetary conditions could weaken the banking sector, whose profitability has already been hit, largely due to low lending, which has been curtailed by high-interest rates, low deposits and a liquidity crunch in the market.

This, the lenders said, will also endanger stability in the banking sector.

But the government seems reluctant to move away from its tight monetary and fiscal stance.

The Treasury has also tightened its fiscal stance as it also suspended payments to contractors who supply goods and services to government departments as part of efforts to halt a slump in the local currency which was fuelling hyperinflation.

During a liquidity crunch, businesses and consumers are charged high-interest rates on loans, a situation which makes it difficult for them to repay the loans.

This could also push non-performing loans up.

The central bank recently increased the interest rates to 200% from 80% to curb speculative borrowing blamed for fuelling parallel market activities

The government believes the tight monetary and fiscal policies stance will stabilise the local currency.