Govt cleans the bank; converts $3b overdraft into long term paper

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PHILLIMON MHLANGA

Government has converted more than ZWL$3bn overdraft with the Reserve Bank of Zimbabwe (RBZ) to a long term bond, Finance minister Mthuli Ncube has said.

Zimbabwe’s high spending government has been breaching its prescribed central bank overdraft limit by several billions to fund government operations.

Last year, the overdraft was ZWL$3 billion which was 55 percent of the previous year’s government revenue in violation of Section 11 (1) of the Reserve Bank Act (Chapter 22:15) which states that borrowing from the central bank should not exceed 20 percent of
the previous year’s government revenues at any given point.

The effects of government overshooting the prescribed overdraft limits have been clearly reflected by an escalation of money supply, which resulted in increased inflationary pressure in the economy, where too much money has been chasing too few goods.

“The RBZ overdraft amounting to $3 billion has been converted to long term instrument (bond),” Ncube disclosed at a business breakfast meeting this week.

“It now has zero balance, this has been done already. That’s the beginning of independence of the central bank.”

Ncube promised to uphold the statutory lending limits and has been vigorously pushing for belt tightening.

In a Memorandum of Economic and Financial Policies that supported the need for an International Monetary Fund’s Staff Monitored Programme on Zimbabwe, Harare said it will restrict lending from RBZ to 5 percent of previous year’s revenue as it moves to contain fiscal deficits.

It said RBZ will not increase its net exposure to the government for the duration of the SMP and that it will convert the stock of RBZ lending to the government at end-December 2018 into marketable debt instruments that the central bank could use for its monetary policy
operations.

“…going forward, short-term recourse to the overdraft facility will be permitted only for transient funding mismatches and limited to 5 percent of the previous year’s revenue, with any drawdowns to be fully repaid by the end of each quarter,” government said.

“We will reduce the statutory maximum of RBZ lending to the government through any instrument [overdraft, T-Bills, and other advances] from 20 percent to 5 percent of previous year’s revenue. This will be affected together with any other amendments to the RBZ Act, at an appropriate time.”