Treasury pumps billions into market

LIVINGSTONE MARUFU

Treasury has pumped billions of dollars into the market, an apparent departure from the government’s tight monetary and fiscal stance, it has emerged.

Multiple Treasury sources told Business Times this week that more than ZWL$200bn was released into the market a few weeks ago for the procurement of grain and payments to contractors, among many

other government commitments, contributing to a massive liquidity boost in the market.

However, the contractors and other recipients of massive cash from the Treasury have been offloading it into the parallel market in exchange for the greenback, a move which sparked exchange rate volatility.

This week, the value of the Zimbabwe dollar plunged dramatically.

From trading at around ZWL$850:US$1 in December 2022, parallel market dealers were yesterday selling it at ZWL$1200:US$1, At the auction, the local dollar also plunged ZWL$705.41: US$1 this week from ZWL$671.44 in December 2022.

“It was year-end, contractors needed to get paid, farmers who delivered grain to the Grain Marketing Board [GMB] wanted their payments and the various farmers from the Command Agriculture were accessing loans from CBZ and AFC hence an excess of ZWL$200bn was in the market during the festive season,” a Treasury source told Business Times yesterday.

On the Reserve Bank of Zimbabwe (RBZ)’s verified Twitter account, the central bank last week appeared to be confirming the huge liquidity poured into the market.

“RBZ would like to urge suppliers of goods and services recently paid by the government to refrain from participating on the parallel forex market in order to sustain price stability,” the RBZ said in a January 6 tweet. The GMB confirmed receiving ZWL$65bn from the Treasury for maize and wheat procurement.

“The money which has been released by the Treasury to buy wheat as of December 19, 2022,

was ZWL$23.3bn and US$3.4m while the GMB had utilised another ZWL$42.1bn and US$22.9m as at December 19, 2022, towards grain procurement,” a senior GMB official who requested not to be named told Business Times this week.

The official said all the money was paid to the farmers.

A senior government official who also commented on condition of anonymity told Business Times: “We were going into the festive season and everyone who has provided a service to the government expected

to be paid and we did exactly that despite our wanting a tight monetary policy stance.”

“What did you expect? Did you expect us not to pay them? We paid them to clear arrears.”

Economist Gift Mugano said excess liquidity was expected as the government spends much money on

construction and agriculture.

“The movement on the parallel market rate was inevitable as the government’s spending on agriculture

and construction remained high resulting in the increase of money supply in the market.

“You should bear in mind that a huge chunk was spent on roads and agriculture.

“This is good but short-term financing backfires in terms of inflation point of view and exchange

rate spiral point of view as paid people will come back to the parallel market looking for the greenback,”

he said.

He added: “We want food security but the model of financing that we are using as a country in agriculture

and grain procurement should be transformed from a command approach to a market-led approach

where companies in the milling industry will be given the right environment to venture into real

contract farming and government should take a back seat.”