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The capitalisation of the RBZ is central in order to allow it to perform its function as the lender of last resort

Conrad Mwanawashe
Zimbabwe has potential to attract foreign direct investment if the country creates a conducive investment climate, ensures policy consistency and clarity on matters which affect investors. Mr Azvinandaa Saburi, head of the Reserve Bank of Zimbabwe’s financial markets division said the liquidity constraints in the economy emanate from the deteriorating current account on the back of poor export performance against increased import  demand.

He said low FDI and portfolio inflows as well as low domestic savings due to low incomes and the general informalisation of the economy were behind the liquidity challenges.

Mr Saburi said the country risk factor and the $9 billion debt overhang is forcing the country to attract unfavourable offshore facilities.

The country’s external debt position of around $9 billion as at December 2013 with payment arrears of $5 billion has resulted in very little support from international financiers worsening the liquidity situation in the country, according to Mr Saburi.

“Any facilities availed to the country are at unfavourable conditions due to the perceived country risk,” said Mr Saburi.

“The other contributing factor is that there is a lot of cash which is not in the banking system,” he  said.

Export of goods and services amounted to $4,4 billion in 2011 while imports of goods and services were $7,6 billion.

Between 2011 and 2013 exports of goods and services registered a decline of 19,1 percent while imports fell by 8,1 percent.

The economy is importing more than it is exporting in terms of liquidity. It means that the economy is actually exporting liquidity as well as jobs and economic growth.

In this regard, Mr Saburi said, the current account deficit worsened from $365 million in 2006 to $3,3 billion in 2011 and is estimated to be $3,7 billion in 2013.

“The transitory nature of deposits in banks has significantly compromised the intermediation role of the financial sector as banks are forced to advance short term loans at a time when the productive sectors of the economy require long term financing,” said Mr Saburi.

He said the liquidity constraints the economy is facing is a result of the low production in the country, the low exports proceeds and failure to attract Foreign Direct Investment.

“Due to the abundance of resources in the country, the potential to attract FDIs is high, there’s therefore need to ensure that the investment climate is conducive for foreign investors.

“There’s need for policy consistency and clarity on matters which affect investors,” said Mr  Saburi.

He said the capitalisation of the RBZ is central in order to allow it to perform its function as the lender of last resort.

“The absence of a well funded lender of last resort facility which is critical for banks’ liquidity management for accommodation when an institution experiences mismatches has resulted in the current state of the market,” said Mr Saburi.

It is also important that the country deals decisively with the external debt overhang as it has forced the country to attract offshore facilities at unfavourable  conditions.

A quick resolution to the debt burden will allow the country to unlock medium to long term offshore facilities which are critical for industry which desperately requires such funding, he said.

“The engagement of multi lateral and bilateral financiers is paramount in this regard,” said Mr Saburi.