By Nomalanga Moyo
SW Radio Africa
25 March 2014
Zimbabwe has received a $100 million loan from the African Import-Export Bank (Afreximbank) which will be used to set up an inter-bank market as the country struggles to solve its entrenched economic problems.
The inter-bank facility is meant to ease the cash shortages that indigenous banks have been experiencing, by enabling them to borrow and trade with each other.
“By so doing, the liquidity which is lying idle will be used to stimulate the inter-bank market. This is expected to have a multiplier effect on the circulation of money in the system,” Finance Minister Patrick Chinamasa said at the weekend.
A statement from Afreximbank said the “decision to introduce the facility was motivated by its recognition of the serious constraints limiting the access of Zimbabwe’s trade finance banks to funding as a result of the liquidity challenge confronting the financial sector.”
The loan will also enable the central bank to exercise some influence over market rates, a role it lost when hyperinflation forced Zimbabwe to adopt a multi-currency system in 2009.
Analysts have welcomed the cash injection but say the facility is a cosmetic intervention that does not address the structural deficiencies in the economy.
Financial economist and academic Bekithemba Mpofu said, in the short term the loan will help ease the liquidity crunch.
“An efficient inter-bank market allows banks to lend to their clients who include companies who need capital to operate at full capacity and produce enough for the export market.
“If companies can’t borrow they can’t produce or manufacture much and the country ends up importing more than it exports. Without export earnings, the country’s ability to service its debts is severely affected and this is more-so for a country like Zimbabwe that is dependent on a borrowed currency,” Mpofu said.
Mpofu said the government should instead create a stable investment climate that will also stimulate economic growth.
“We need an environment where companies can begin to operate at full capacity to sustain the economy because without this any financial aid the country gets will bring short-term results.
“More importantly Zimbabwe needs a government that’s willing to implement sound policies that will not deter foreign investors. Without political will, we will keep discussing remedies and this does not solve the problem,” Mpofu added.
Harare-based economist Prosper Chitambara said the loan will infuse some confidence into the financial market and give the central bank some relevance as “lender of last resort”.
“But this is money that’s being injected into the financial system and not into the economy and so this does not exactly stimulate economic growth.”
Chitambara said while it is necessary to stabilise the financial system it is also important to address the challenges that have led to the instability and seek to inject life into the economy as a whole.
“Right now confidence levels in the Zim economy are very low, and there is a strong indication that we are in deflation due to continued de-industrialisation of the economy.
“Unless the State deals with macro-economic issues these short-term measures will not lead to any sustainable economic growth or development,” said Chitambara.
Another commentator, Lee Moyo, said the inter-bank facility is a good idea “provided ZANUPF doesn’t do what it knows best – looting”. He added that Zimbabwe has the resources to stimulate economic growth, the problem is that these are misused.
The central bank – which will manage the inter-bank facility – is itself saddled with a debt of more than $1 billion which it incurred when ex-governor Gideon Gono looted foreign currency accounts belonging to charities and corporates. The money was used to fund the ZANU PF government.
At the moment it needs up to $200 million to capitalise, Reuters news agency reported Monday.