Cash squeeze hits industry

LIVINGSTONE MARUFU AND TANATSWA KANDENGA

The Reserve Bank of Zimbabwe (RBZ)’s stringent monetary policy stance has caused a cash crunch that has severely hampered operations, business leaders revealed this week.

They told Business Times that industry is likely to experience unintended consequences from the central bank’s attempt to push demand for the local currency, the ZiG.

The executives are not happy with the central bank’s moves, which include deliberately manipulating the market to inflate demand for ZiG.

They assert that the situation would drive them to the brink of collapse because their working capital was running low.

Oswell Binha, the CEO Africa Roundtable board chairman, expressed concern that the move by the central bank was now impeding commercial activities.

“It’s a paradox,” Binha told Business Times.

He added: “On one side we want to use our local currency and on the other side while we are chasing stability, we are now constraining business activities.

“It’s more expensive for the members as they are going to borrow to pay statutory obligations against a background where they should not borrow in the first place.  That’s a dilemma.

“We expected normal situation to prevail on the market as we have been settling our obligations using the ZiG, now all of a sudden we are no longer getting it.”

According to him, some players in the industry are accusing the central bank of manipulating the ZiG circulation in order to create widespread artificial shortages.

“…Most major players who are supposed to be transacting with their suppliers, particularly the mining sector suppliers, are failing to pay them due to central bank related issues.

“We are yet to engage the central bank on the matter. The issue is that key national institutions must discharge their responsibilities in such a way that they facilitate citizens to do what they are supposed to do.

“If it’s a corporate citizen their responsibility is to make business and if it’s a private citizen one should be able to transact. For example, if you go to a retail shop there is no reason I should continue getting chocolates because you have denominations to give sufficient change.

“It’s an issue that the central bank has to realise. Whilst they want the economy to stabilise, it should facilitate transactions and economic activities. Once you begin constraining them you are becoming a bit artificial. And people would start reading between the lines and at the end of the day you will start undermining the small trust that you have built over the years in terms of the currency usage. So, we want the monetary authorities to do the right thing.”

The Confederation of Zimbabwe Industries’ president, Kurai Matsheza, asserts that there was a need to strike a balance in ZiG liquidity management.

“We believe that there is a need to be moderate in terms of ZiG supply in the market and the squeeze. There should not be an abundance of either of the two. In this case the squeeze is on the high side,” Matsheza said.

The Zimbabwe National Chamber of Commerce CEO, Christopher Mugaga, told Business Times they were keeping an eye on the situation.

“We are monitoring the situation and I think by month end, we will have a clear position on how our members were impacted by the statutory obligations payments. What we don’t want is that there are unintended consequences whereby the businesses will go out of their way to look for ZiG to pay their statutory obligations. You may go into the street to look for ZiG and it strengthens value but that is an unhealthy fundamental to grapple with,” Mugaga said.

He added: “ZiG has a huge problem for some of our members as they are failing to access it.”

Dr. Innocent Matshe, the deputy governor of the Reserve Bank of Zimbabwe, stated during the CEO Africa Roundtable held in the resort city of Victoria Falls last week that the central bank will not stray from its strict monetary policy position in order to safeguard ZiG.

“ZiG is a game changer and it is unique in that it is backed by gold and other minerals.The RBZ will maintain a tight monetary policy stance to protect and maintain the value of ZiG,” Dr Matshe said, adding that “The central bank will also contain money supply growth.”

Fanwell Mutogo, the CEO of the Bankers Association of Zimbabwe, emphasized that the squeeze is consistent with plans to keep the tight monetary policy in place.

He said: “As espoused in the 2024 Monetary Policy Statement, the RBZ highlighted that it will strategically manage money supply growth through a disciplined culture in sync with improved economic activity and increased reserves in the form of precious minerals (mainly gold) and foreign currency balances. This Monetary Policy Framework re-affirms the Reserve Bank’s anti-inflationary commitment”.

The market is being drip-fed by policy makers, according to economist Vince Musewe, out of concern that the rate may run away.

Diminished economic activity is one of the unforeseen outcomes, he claimed.

“Sadly, the unintended consequences are subdued economic activity and psychological repricing upwards of the rates. As soon as the floodgates open you will inevitably have a catch-up scenario, which will create volatility,” Musewe told Business Times.

Another economist, Dr Prosper Chitambara, weighed in saying the cash crunch  was consistent with the central bank’s tight monetary policy stance, which ostensibly aims to address some of the inflationary challenges that the economy has been battling with.

“The biggest source of inflation or driver of inflation has been unsustainable growth in liquidity and money supply. So, under the thrust and tightening of the monetary policy it is obviously important to ensure some kind of squeeze or to manage liquidity in a way that is sustainable,” Dr Chitambara said.

Economic analyst Victor Boroma said: “The squeeze largely reflects the tightening of money supply by the central bank especially after ending the RBZ’s forex auction system which was the main source of liquidity.

“The impact is that there is limited ZiG chasing the United States dollar which largely stabilizes the exchange rate, helps maintain prices and ZiG buying power. What remains to be seen is if the central bank will allow commercial banks to determine the exchange rate and whether money supply will be kept in check”.