Govt must act on liquidity crisis

HARARE - For the past few months, there has been a significant increase in the number of cases where people are having their properties attached by financial institutions due to non-payments of loans.

The high levels of non-performing loans in the country is a sign of the economic crisis Zimbabwe is going through and most people are already feeling the pinch as evidenced by the high cost of living and dwindling disposable incomes.

Since 2009 when the economy dollarised, most people in the country — especially in rural Zimbabwe — have been at the receiving end of the acute cash shortages being experienced in the country.

A recent study by the Zimbabwe Statistical Agency (Zimstat) revealed that overall poverty rate has reached a record high of 63 percent with Zimbabwe’s estimated population of 13 million vastly classified as poor and 16 percent living in extreme poverty.

While there are a lot of causes for the current situation, including the central bank’s loss of lender of last resort function, we feel government should do more to help address the liquidity challenges.

Tackling the liquidity crisis will require strengthening the banking sector and creating conditions that induce long term deposits into the system.

Monetary authorities should consider policies which address punitive bank charges and the high spread between lending and deposit rates estimated at 20 percent compared to about five percent in the region as long term solutions.

The country’s payment system should also encourage the use of alternative payment solutions and increase the capacities of the RTGS system.

It is our hope that government will introduce new liquidity policies that would require banks to place less reliance on short-term wholesale funding particularly from foreign sources and the restoration of the Reserve Bank of Zimbabwe’s lender of last resort function.

There will also be need for a higher amount and quality of stocks of liquid assets, which may include a greater proportion of assets held in the form of government debt.

We believe the Finance ministry and the central bank need to restore confidence in the country’s financial institutions.  An overload of government policy statements, which seems to suggest to the public that Zimbabwean banks are either on the brink or fundamentally unsafe, have caused most people to keep their money at homes. Consequently, this has worsened the liquidity situation in the country.

The new government, which has committed to uplift the lives of ordinary Zimbabweans by unveiling a new economic blueprint to address economic and social issues, can also help by providing social security safety nets and programmes to help people cope with unemployment.

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