Harare – Finance Minister, Mthuli Ncube said Treasury will be implementing a cocktail of fiscal measures necessary for effective fiscal and monetary coordination in order to restore macroeconomic stability in line with President Emmerson Mnangagwa pronouncement to restore fiscal equilibrium.
In his State of the Nation Address during the opening of the Seventh Parliament, President Mnangagwa emphasised the need to restore fiscal equilibrium.
In his presentation dubbed ‘Fiscal Measures for Reversing Fiscal Dis-equilibrium’ in the capital on Monday Ncube said a stable macro-economic environment is an essential precondition for growth and improvement of living standards for Zimbabweans as it allows individuals, businesses and the Government to plan more effectively for the future and it increases investment and helps to raise productivity.
Over the years, the country’s budget deficit increased to unsustainable levels and Ncube pointed out that various measures need to be taken in order to reduce it, so that it seizes to be an albatross on the growth of the economy.
He said the overdraft with the Central bank stands at US$2.3 billion, as at end of August 2018, well above the statutory limit of US$762.8 million.
“Consequently, Government will effectively limit the use of the RBZ overdraft facility and curtail RBZ advances to Government in line with Section 11(1) of the Reserve Bank Act [Chapter 22:15], which states that borrowing from the Reserve Bank shall not exceed 20% of the previous year’s Government revenues at any given point.”
Ncube also said another burden which need to be addressed is the issuance of Treasury bills which is weighing down the economy.
To date, Treasury bill issuances have increased from US$2.1 billion in 2016 to a cumulative US$7.6 billion, by end of August 2018.
In 2014, Treasury Bills to GDP ratio was at 4.4 percent and has increased sharply to 36.5 percent by end of August 2018.
“This is a cost to Government. Excessive issuance of short-term debt instruments at high interest rate also crowds out the private sector and compounds the increase in Government recurrent expenditure.
“Accordingly, Government in its management of domestic borrowing, is reviewing the use of Treasury bills in support of socio-economic development programmes.
“Going forward Treasury will seek to finance Government’s vital socioeconomic development programmes by use of instruments that “crowd in” the private sector, including public private partnerships or Government guarantees to financial institutions,” said Ncube.
The minister said that such guarantees will only be a contingent liability to Government, unlike Treasury Bills that have a direct and immediate cash flow implication on Government.
In addition, Ncube said a recourse to the guarantee scheme would require demonstration by a financial institution that they have made best effort in seeking to recover the loan from a borrower.
“Precisely, any issuance of Treasury Bills, in the future will only be through the auction system, a more market oriented system.
“This will improve the process of price discovery and better pricing. The duration profile of the current domestic debt will also be lengthened in line with inflationary expectations.”
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