In his mid-term MPS, RBZ governor announced sustained expansionary policy measures to cushion the “under siege” economy. While noting that the root cause of the current liquidity challenges was excessive government borrowing, the RBZ doubled its export incentive scheme announcing a $300 million export incentive facility on top of the existing and yet to be exhausted $200 million, among other measures, a sign of distress. It is the governor’s persuasion that enhanced export support through incentives will result in increased exports and in turn improved receipts from those exports. Trade data seems to support the paradox, however minimal attention to opportunity cost appears to have not been factored. For reference, exports grew by 18% to $2.6 billion in 2016 coming from an average annual decline of 3.4% between 2010 and 2015. Imports likewise slowed down to the lowest level in 5 years in 2016 implying an improved net trade gap. Therefore export level supported by remittances could easily sustain the economy’s imports demand, but the growing mismatch between forex receipts which make up the bulk of the economy’s cash balances and the total deposits, which have risen more faster in absolute terms, will continue to weigh on liquidity. So the Bank is chasing a moving target, growing exports to avert liquidity woes, while government willy-nilly increases its appetite for debt, in itself an ingredient for unfunded and undesired deposit growth.

The central bank is happy with the inflation rate, which now is evidently understated given the 3 tier pricing system in the economy. A highly informal economy at 70%, implies that the majority of economic activity is conducted outside of formal banking and therefore the use of cash is paramount. An indulgence of alternative payment modes naturally attract a huge premium and that premium is inflationary. If factored the CPI figure for Zimbabwe could well be above 4%. Elsewhere trade data released for the month of June shows a widening trade deficit month on month as exports under-performed coming off by 9% compared to a 6% imports growth. On average exports have eased by 5% month on month since January, a reflection of weak competitiveness, low production and a weakening macro-economic environment.

In the week CBZH, the country’s biggest bank by asset size released its interim results marking the beginning of the earnings season for the both banks and listed companies. The group registered a marginal 0.25% improvement in profit to $11.95 million. The 2 major income drivers moved inversely with interest income taking a huge knock despite the growth in advances , while non funded income registered a quicker growth. The dearth in interest income is against the backdrop of interest rates while the growth in non funded income reflects the increase in transactional volumes as customers go digital. The banking institution finds itself with insatiable appetite for sovereign paper whose exposure at $827 million stands at almost 40% of total interest earning assets. All of the units traded profitably although the life business reported a reduced profit. Another banking institution MBCA released its interim's in line with its parent company NEDBANK, reporting a huge 126% growth in profit driven by a sharp surge in non funded income. CABS is due to release its interims this week together with its parent Old Mutual in line with parent Old Mutual Plc.