THE Confederation of Zimbabwe Industries (CZI) says government should stop making overdrafts from the central bank as this fuels inflation and aggravates the country’s fiscal deficits.
After an extended period of low inflation, the country has seen inflationary pressures piling. Money supply growth has also accelerated, sending shock waves across sectors.
Inflation remained flat at 2,71 percent on an annualised basis in May, according to the Zimbabwe National Statistics Agency, but this has been a great leap from about -7,7 percent at dollarisation in 2009.
CZI’s suggestion is contained in a paper called Post Election Recovery Document, Macro and Currency Draft, which is under discussion at the business lobby.
The paper, which explores post-election strategies that Zimbabwe can pursue to revive the ailing economy, is of the view that government should borrow from the banking sector which has about $8 billion in deposits.
This comes after the Reserve Bank of Zimbabwe (RBZ) said in February the country’s high spending government had overdrafts worth about $1,2 billion.
Central bank governor John Mangudya (pictured), who expressed reservations over government profligacy and its effects on the distressed fiscal system, said in line with its lending powers, the RBZ was restricted to lending up to 20 percent of the administration’s revenue for the previous year. This had not been adhered to.
In its paper, CZI said the banking sector had enough deposits for lending to government to finance its operations.
“While we work on measures to tame the fiscal deficit it is very important that in the interim, we resort to non-inflationary financing mechanisms of the fiscal deficit,” said CZI.
“A lot of the current financing of the deficit has been through the creation of money via borrowing from the Reserve Bank of Zimbabwe on overdraft. We recommend that this stops as soon as possible and that all borrowing is done from the market at market rates. There is more than $8 billion in bank deposits which is plenty to meet any short term financing requirements while we develop longer term options.
“The immediate post-election period is the best time to try and deal with this. Dealing with this will obviously require some tough decisions and the further away from an election tough decisions are made the more time there is available for the benefits of these decisions to be felt,” it said.
In his warning in February, Mangudya called for belt tightening in government and urged financial discipline. He said the RBZ would stick to lending limits this year.
“This measure is necessary in order to comply with good corporate governance and to mitigate the unintended consequences of excess government overdraft on the economy,” Mangudya said.
“In terms of the overdraft, we are at $1,2 billion. We were supposed to borrow $800 million, but we are $400 million above the limit. We want to stick to this. We are putting measures in place to ensure that we stick to this,” he said.
Analysts have slammed government for lack of fiscal rectitude, as well as misplaced priorities, which have been highlighted by a consumptive fiscal policy, including spending on luxury cars and expensive foreign trips.
Due to a huge import bill, the country has experienced huge cumulative current account deficits, estimated at $18 billion between 2009 and 2015.