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Zimbabwe’s bond notes might have eased some of the country’s
liquidity challenges, but the World Bank warned the country’s financial markets
were too small to absorb the government’s $1billion (R13bn) overdraft with the
Reserve Bank of Zimbabwe.
The
World Bank said yesterday that “replacing this overdraft with treasury bills
and a domestic bond would further constrain the supply of credit” to the
private sector.
Further
increases in the overdraft to finance the 2017 budget, which was expected to notch
up another deficit, would increase the money supply and intensify inflationary
pressures, the bank said.
“The
bond notes have increased the cash supply, boosting liquidity and attenuating
deflationary pressures. However, further issues of bond notes will need to be
carefully monitored to contain inflationary pressures,” the World Bank said.
Zimbabwe is battling cash shortages, which
the bond notes have failed to fix, with banks still witnessing long queues for
cash and ATMs running out of banknotes.
This
is expected to further stifle economic growth.
However, the World Bank expects Zimbabwe’s
economy to grow by 2.8percent this year, with growth likely to be boosted by a
recovery in agriculture.
It said the country’s gross domestic
product (GDP) growth last year was sluggish.
Mining, another key sector, had performed
well, but still faced challenges, especially with royalties still high amid a
difficult operating environment.
Zimbabwe’s mining industry is home to units
of Anglo Platinum, Sibanye Gold, Impala Platinum, Metallon Gold, among other
resource groups.
“The cost of doing business in the sector
remains high due to an outdated capital stock, a difficult business climate,
and high royalty rates relative to other countries,” the report said.
It further highlighted that President
Robert Mugabe’s government should remain committed to “the transparent,
credible, and consistent application of its indigenization policy” which would
be crucial “to attract and retain investment” in the mining sector.
The country’s financial services sector, in
which Barclays, Standard Chartered, Standard Bank and Nedbank have units,
experienced a dramatic increase in government debt between 2015 and this year,
which was negatively affecting the private sector.
The 2016 fiscal deficit that Zimbabwe
notched up had “largely exhausted the government’s access to financing and
limited the resources available” for the 2017 and subsequent budgets.
Foreign exchange rationing was expected to
continue in Zimbabwe but the World Bank insisted that structural reforms,
including improvements in the business climate, remained vital to Zimbabwe’s
economic development.
Source: Business Report
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