RBZ recapitalisation may ease liquidity crunch: Analysts

HARARE - Government’s decision to recapitalise the Reserve Bank of Zimbabwe (RBZ) and restore its lender-of-last-resort position will help ease liquidity constraints in the country, economic experts have said.

They said the move may also reinstate confidence in the financial services sector.

Zimbabwe has been experiencing tightening liquidity conditions since 2009 when the country adopted a multiple currency system ? chiefly the United States dollar and South Africa’s rand — ruling out central bank interventions through monetary policy.

The acute liquidity conditions have resulted in high interest rates which the government hopes can be lowered by the resuscitation of an interbank market anchored by a well-capitalised central bank.

Finance minister Patrick Chinamasa in his 2014 National Budget noted that government is working on restoring confidence in the financial sector through the recapitalisation of the central bank.

“The first stage of achieving this is underway, as I propose the assumption of the RBZ debt of $1,35 billion by government.

“This is a critical process to free up the central bank’s balance sheet before capitalisation,” he said.

Chinamasa highlighted that treasury will proceed to issue the requisite debt instruments to local financial institutions and other players who were owed by the Reserve Bank by the first quarter of this year.

“The second stage is to raise an amount of $200 million to capitalise the Reserve Bank, in order for it to provide liquidity support to the financial sector as we proceed to ensure that it effectively plays its lender- of-last-resort role and re-discount market instruments when the need arises.

“Efforts are at an advanced stage to raise the required capital and I expect this to be achieved by March 31, 2014,” he said.

Market experts argue that among many prerequisites for any economy to be viable and grow is a central bank that fulfils key functions of supervision and direction of the financial sector in general, and banking institutions in particular.

“Minister Chinamasa’s efforts to revive the operations of the RBZ are commendable and we cannot overemphasise the importance of the central bank,” said equities advisory firm Lynton-Edwards Stockbrokers.

Other analysts say if the RBZ is to be enabled to fulfil its essential role in the Zimbabwean economy —  as is the case with central banks in many countries — and if confidence is to be restored in the economy, the overdue recapitalisation of the RBZ and its redemption of immense indebtedness’s must be effectively addressed with utmost urgency.

“Should these and ancillary appropriate actions be pursued, the RBZ will transform into an effective, autonomous central bank, enabling it to fulfil, directly and indirectly, a substantive role in restoring confidence in the banking sector by motivating foreign investment.

“In general this will accelerate a significant upturn of the economy, and maintain the attained economic revival,” said Bulawayo-based economist Eric Bloch.

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