Business exert pressure on RBZ governor

…..as liquidity crisis worsens

LIVINGSTONE MARUFU

The Reserve Bank of Zimbabwe (RBZ) governor, John Mushayavanhu, is facing mounting pressure from captains of industry and commerce, to address an escalating liquidity crisis that is crippling operations across sectors.

Business Times, a market leader in business, financial and economic reportage, can report that in a critical meeting  with Dr Mushayavanhu held on Monday this week , the business leaders voiced their concerns saying the liquidity squeeze , a result of  the central bank’s  tight monetary policy, has left businesses struggling to meet their financial obligations and maintain operational efficiency and urged the apex bank to act swiftly and avert further disruptions.

The Zimbabwe National Chamber of Commerce (ZNCC) CEO, Christopher Mugaga   confirmed that industry leaders expressed their concerns during the meeting with Dr Mushayavanhu this week, saying the liquidity crunch has left businesses on the edge.

“We just came out of a meeting with the central bank governor on the Monetary Policy Statement submissions where we discussed the current crunch in terms of the Zimbabwe Gold [ZiG] liquidity.

So in our engagements with the central bank governor, we raised the issue of liquidity squeeze. We strongly believe there is a liquidity crunch hence we discussed with the governor on the need to address that challenge,” Mugaga  said.

“The crunch has caused disruption of operations in most companies resulting in companies struggling to meet their ZWG obligations.  We are hoping there will be an injection in the market.”

ZNCC president Tapiwa Karoro echoed these sentiments.

“As industry, we met the governor on issues concerning the current liquidity squeeze in the market and how it could be addressed,” Karoro told Business Times.

He highlighted proposed solutions to alleviate the crisis.

“ To solve that puzzle, we also suggested that the RBZ  could raise the foreign currency retention portion to above 75% and this could help industry players to get more forex,” Karoro said.

Sekai Kuvarika, CEO of the Confederation of Zimbabwe Industries (CZI), highlighted the liquidity challenges affecting Zimbabwe’s economy.

“Generally the market is short both USD and ZWG because of the increase in reserve requirements which mainly impacted banks and has constrained them on the lending side impacting industry and the economy. Working capital constraints are a major issue at the moment. The resultant vicious cycle of increased demand for that liquidity may lead to defaults across value chains and affect credit cycles,” Kuvarika said

All efforts to get a comment from RBZ governor, Mushayavanhu, were futile.

Analysts are of the view that the RBZ ‘s monetary policies , aimed at controlling inflation and stabilising the the Zimbabwe Gold (ZiG) currency, have contributed  to the liquidity crunch.

However, RBZ deputy governor, Dr Innocent Matshe , defended the bank’s approach, emphasising the need for balance.

“Too much liquidity will cause inflationary pressures in the economy and instability in the exchange rate.

On the other extreme, too little liquidity will lead to settlement failures and financial instability hence there is a need to balance liquidity to support smooth functioning of the banking sector and payment systems,” Dr Matshe said.

While the central bank maintains that its tight liquidity stance is necessary, businesses are bearing the brunt of the policy.

Limited access to cash and credit has left companies unable to fund operations, pay suppliers and invest in growth.

 

Ripple effects on businesses

The liquidity crisis is causing widespread disruption across Zimbabwe’s economy. Captains of  industry and commerce told Business Times, a market leader in business, finance and economic reportage, that companies are struggling to maintain cash flow, secure financing and meet capital needs.

They warned that the prolonged liquidity squeeze could trigger several adverse effects including declining production levels, reduced business activity and the financial strain could erode asset values, weakening firms’ balance sheets.

There is also a likelihood of increased corporate insolvency where firms are unable to meet financial obligations could face bankruptcy, further destabilising the economy.

Persistent liquidity squeeze could also deter both local and foreign investment, stalling economic recovery.

As firms grapple with declining cash flows, layoffs and wage cuts are likely, exacerbating the country’s already high employment unemployment rate. With limited access to capital, businesses may postpone or abandon expansion plans, reducing opportunities for innovation and economic diversification.

Economist, Professor Gift Mugano, criticised the RBZ’s tight monetary stance, arguing that it has failed to address underlying economic challenges.

“From its introduction, ZiG, was not backed by fundamentals hence it was doomed to fail.

The government’s current approach-delaying payments to suppliers and, contractors and exporters’ 25% surrender portion- is unsustainable.

These policies are industry and will only exacerbate the economic crisis,” Professor Mugano warned.

“You don’t hold a payment of importers and suppliers, you don’t hold a payment of contractors, you don’t hold a payment of exporters when you hold 25% of the surrender requirement portion. The authorities are killing the industry there and that will not sustain ZiG.”

Proposed Solutions

To mitigate the liquidity crisis, industry leaders have proposed several measures:

  • Liquidity injection

The RBZ could release additional funds into the market to alleviate cash flow constraints.

  • Foreign currency retention

Raising the retention threshold for foreign currency earnings above 75% would give businesses greater access to critical resources.

  • Payment reforms

 The government should prioritize timely payments to contractors, suppliers, and exporters to boost confidence and liquidity.

  • Enhanced dialogue

Strengthening collaboration between the government and the private sector would ensure policies reflect the realities on the ground.

Long-Term Implications

If left unaddressed, the liquidity crisis could have far-reaching consequences for Zimbabwe’s economy. Persistent liquidity squeeze threatens to derail economic recovery efforts, undermine investor confidence, and worsen social and economic inequalities.

The crisis underscores the importance of balancing monetary policies with the needs of businesses.

While controlling inflation is crucial, policies must also foster an environment that supports growth, innovation, and job creation.

Zimbabwe’s liquidity crisis highlights the urgent need for policy reforms and collaboration between the government and the private sector.

The RBZ and policymakers must act swiftly to implement solutions that address the cash squeeze while maintaining economic stability.

Failure to resolve the crisis risks deepening economic hardship for businesses and citizens alike.

As industry leaders continue to advocate for change, the government must prioritize actions that promote a sustainable and inclusive recovery for Zimbabwe’s economy.

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