No liquidity crisis: Mushayavanhu

LIVINGSTONE MARUFU

The Reserve Bank of Zimbabwe (RBZ) Governor, Dr. John Mushayavanhu, has dismissed claims of a liquidity crunch, asserting that the banking sector remains flush with cash.

He revealed that banks are closing daily with surplus balances exceeding ZWG1bn, reinforcing the central bank’s stance that liquidity conditions are stable.

Dr. Mushayavanhu’s remarks come amid mounting concerns from businesses struggling with credit access, citing the effects of the RBZ’s tight monetary policy. In an exclusive interview with Business Times, a market leader in business, financial and economic reportage, the governor maintained that the economy is poised for growth, attributing current liquidity levels to prudent central bank interventions.

“Currently, there are no liquidity challenges in the economy, as banks are closing each day in a surplus position of over ZWG1b. The Reserve Bank is optimally managing liquidity conditions and has been locking up excess liquidity in Non-Negotiable Certificates of Deposits (NNCDs) to minimize speculative lending and potential risks to price and exchange rate stability,” Dr. Mushayavanhu said.

He emphasized that ensuring smooth liquidity flow is crucial for supporting economic activity.

The Bankers Association of Zimbabwe (BAZ) concurred with the RBZ’s assessment, stating that liquidity levels in the financial system are sufficient. However, BAZ acknowledged that despite system-wide liquidity, banks are not actively lending to each other, which may cause localized liquidity constraints.

“From the central bank’s vantage point, which oversees the entire financial system, the governor’s statement about surplus liquidity is accurate. The reported daily surplus of over ZWG1 billion suggests that, in aggregate, the banking system has sufficient liquidity,” BAZ noted.

However, BAZ highlighted that while some banks may have surplus liquidity, others could be experiencing shortfalls due to risk considerations and market inefficiencies. “While some banks may indeed hold a long position [excess liquidity], others could be running short positions (temporary deficits). The banks with surplus funds may be hesitant to extend credit to their counterparts due to their own short-term obligations. This could create localized liquidity mismatches even as system-wide data appears healthy,” BAZ said.

Despite the RBZ’s assurance, business leaders argue that liquidity surplus at a macro level does not necessarily translate to accessible credit. Zimbabwe National Chamber of Commerce (ZNCC) President Tapiwa Karoro expressed concern that businesses are struggling due to limited lending options.

“While the RBZ governor indicates that banks have a daily liquidity surplus, the availability of liquidity does not necessarily mean accessibility to productive sectors. The key question is whether this liquidity is circulating effectively or being held due to risk concerns. High levels of surplus liquidity in banks may indicate structural inefficiencies, such as risk aversion in lending, high interest rates, or stringent borrowing conditions that deter businesses from accessing credit,” Karoro said.

He noted that with a Bank Policy Rate of 35% and ZiG lending rates ranging between 40% and 47%, borrowing costs are prohibitive for most businesses. “The Targeted Finance Facility has not gained much traction or improved the situation,” he added.

Karoro further highlighted that banks are increasingly opting for risk-free investments like government securities rather than lending to businesses. “Given Zimbabwe’s economic volatility, banks may prefer safer investments like treasury bills instead of extending credit to businesses. Also, stricter prudential lending guidelines might be limiting banks’ ability to extend credit,” he said.

ZNCC President Christopher Mugaga echoed these concerns, emphasizing a growing squeeze on ZiG liquidity. “We have always maintained that there is a liquidity crunch in the market. It is difficult to access funding, especially for businesses seeking credit lines with favorable interest rates and tenures. Most depositors are calling their money in a very short space of time, making long-term lending difficult,” Mugaga said.

He added that surplus liquidity does not necessarily translate to increased lending. “A surplus does not always mean lending. Banks must consider risk management factors. Lending too aggressively could lead to non-performing loans,” Mugaga noted.

Economist Malone Gwadu attributed liquidity challenges to the failure of banks to trade among themselves. “It speaks to general differences in positions where some banks are in short positions while others are in long positions. The inability of banks to trade positions among themselves contributes to the current liquidity crunch. This could be due to various reasons, including systemic and systematic risks,” Gwadu explained.

He called for collaborative efforts to improve liquidity distribution. “Not all banks have surpluses. Some may not have the appetite to lend, depending on their risk exposure. Limited interbank trading hampers the efficient allocation of liquidity to where it is needed, including lending for productive purposes,” he added.

Another economist, Dr. Prosper Chitambara, highlighted the trade-offs of tight monetary policy. “The objective is to stabilize the economy, but tight liquidity conditions could also impact lending to productive sectors. There is a need for balance. For now, the priority is maintaining stability. Once stability is sustained, economic expectations will gradually adjust,” Dr. Chitambara said.

RBZ data shows a gradual increase in lending to productive sectors, as indicated by the loan-to-deposit ratio: 49.27% (December 2023), 53.98% (March 2024), 56.93% (September 2024), and 58.83% (December 2024). According to the latest Monetary Policy Committee (MPC) resolutions published on March 28, 2025, the central bank’s tight monetary stance has stabilized both the exchange rate and inflation, which banks argue is beneficial for long-term economic stability.

However, businesses contend that the tightening of monetary policy has restricted lending and increased borrowing costs. “With high borrowing costs, businesses are hesitant to take on debt, limiting their ability to expand and invest in growth,” Karoro said.

Mugaga stressed the need for monetary policy to align with fiscal policies for better outcomes. “Monetary policy alone cannot fuel economic growth. It must be complemented by fiscal policies that promote stability. The challenge is ensuring that policy direction remains consistent,” he said.

As Zimbabwe navigates its monetary policy landscape, the debate between the central bank, businesses, and economists underscores the delicate balance between stability and credit accessibility. While the RBZ insists that liquidity levels are healthy, concerns from businesses and analysts suggest that the broader financial ecosystem still faces significant structural inefficiencies that need to be addressed.