Zimbabwe’s high spending government has eliminated its reliance on ‘copious’ money printing through direct central bank’s monetary financing to fund its operations, Finance and Economic Development minister Mthuli Ncube has said.
The curb on the Reserve Bank of Zimbabwe’s (RBZ) overdraft facility means there has been a tight money supply, resulting in a reduction of inflationary pressures. Less is now chasing too many goods.
Ncube said that although the RBZ facility was cheap and readily available, the move was certainly unsustainable.
The reliance on apex lender money, Ncube said, has consequences for macro-stability.
“We have eliminated creating unnecessary money creation and stopped using the overdraft window from the RBZ. Since January 1, 2019, Treasury has not borrowed anything from the RBZ window and doesn’t see using it maybe until the middle of 2023,” Ncube said.
He is bullish on the projected economic growth of 7.8%, which he said should be supported by a transparent allocation of the International Monetary Fund cash injected into the economies through its reserve asset known as the special drawing rights.
Zimbabwe received US$961m.
Ncube also said fiscal consolidation has delivered the stability that the economy has enjoyed so far.
The introduction of foreign currency auction system has also resulted in some companies accessing capital, though not adequate, for retooling and financing operations which has resulted in increased capacity utilisation.
The past crisis , where government spending, spiralled out of control owing to lack of fiscal rectitude, as well as misplaced priorities, could have convinced President Emmerson Mnangagwa’s administration to turn off addiction to borrowing unlimited amounts from the RBZ.
At the end of 2018, Treasury was sitting on an overdraft of more than US$3bn, which has since been ring-fenced with the RBZ.
Prior to 2019, it was normal for Government to overshoot its prescribed central bank overdraft limit.
Section 11 (1) of the Reserve Bank Act (Chapter 22:15), states government borrowing from the RBZ shall not exceed 20% of the previous year’s government revenues at any given point.
The breach of the RBZ Act was a source of concern.
The effects of government overshooting the prescribed overdraft limits have been clearly reflected by an escalation of money supply, which has resulted in increased inflationary pressure in the economy.
Last year, the Zimbabwe Revenue Authority, which is the government’s tax collection agency, reported a net revenue collection amounting to ZWL$182bn against a target of ZWL$171.7bn.
This means the government could have borrowed about ZWL$36bn, which is 20% of 2020 revenue collection.
But, did not, according to Ncube.
Ncube called for belt-tightening and promised to uphold the statutory lending limits.
The government however has continued the issuance of Treasury Bills (TBs) to fund budget deficits and daily operations.
The issuance of TBs, which are short-term debt instruments backed by the government, underlines how the government had crowded out the private sector on the money market.
The issuance of TBs has surged from ZWL$2.1bn in 2016 to a cumulative ZWL$10bn by end of December 2020, according to official data obtained from the Treasury.
Excessive issuance of short-term debt instruments at a high interest rate also crowds out the private sector and compounds the increase in government recurrent expenditure.
Last year, Ncube said going forward, Treasury would seek to finance the government’s vital socio-economic development programmes by use of instruments that crowds in the private sector, including public-private partnerships or government guarantees to financial institutions.
Such guarantees, the Treasury boss said, would only be a contingent liability to the government, unlike TBs that have a direct and immediate cash flow implication on the government.
Zimbabwe, once one of Africa’s most promising economies, has not been accessing fresh external capital due to its failure to clear debt arrears to international funders. Defaulting on its external debt resulted in the country being shut out of international capital markets.
But, President Emmerson Mnangagwa has vowed to get the debt plan back on track in a bid to open fresh loans for the capital-starved country.