Cash flight persists

HARARE - Flight of hard cash from the economy has remained unabated despite moderation in recent months, amid indications that the cash ratio in the first half was six percentage points lower than the same period last year.

Local financial market analysts, Equity Axis (EA), yesterday said Treasury Bills (TB) holdings by commercial banks had grown 70 percent from $750 million to $1,27 billion, in light of tight liquidity.

“Since 2009, aggregate treasury bills holdings as a percentage of deposits as reported by the central bank grew from zero percent to 29 percent as at June,”

“As a matter of record, no single bank has reported that government has failed to service its sovereign paper dues to date but signs of pressure are evident,” EA said.

A TB is a short-term debt obligation backed by a government with a given maturity, in most countries the promissory notes are issued with a maturity of less than one year.

Issued through a country’s central bank, TBs commonly pay no explicit interest but are sold at a discount, their yield being the difference between the purchase price and the par-value (also called redemption value).

To cope with tight liquidity and meet obligations, the Reserve Bank of Zimbabwe (RBZ) has been issuing TBs to meet obligations to its various creditors.

Reports indicate that the central bank has minimised the issuance of paper with shorter maturities while coupons on fresh issues has been suspended.

“If held true what this suggests is that the accumulated debt has gradually grown to levels where government cannot sustainably issue more paper with similar features which requires it to commit in the short-term,” the analysts said.

EA noted that deferring all obligations in periods of up to three years gave relief to fiscal space in a period where government collections were underperforming, after Zimbabwe Revenue Authority missed if first half collection target by six percent.

RBZ’s latest report shows that between June 2016 and the same time last year hard cash balances declined by 37 percent from $546,3 million to $343 million as at June 2016.

“The decline in hard cash is despite a growth in overall deposits which went up by 16 percent in the same period to $4,45 billion.

“The variance in deposits and hard cash has been widening since 2009 having started at 49 percent while closing at eight percent as at June 2016,” EA said, adding that the widening gap and incessant growth in sovereign paper issuance had increased scepticism in the market over government’s ability to sustainably service the debt as it falls due.

EA stated the development could trigger a run on banks given the increased exposure of bank income assets towards this asset class.

“The widening gap mentioned above has led some to conclude that there is already a secondary currency in circulation in the form of RTGS which is trading at a discount of 10 percent to the hard cash,” the analysts said.

This comes as former Finance minister Tendai Biti recently said government was illegally printing money in the form of TBs, which Treasury has been using to honour government debts.

Biti — who served as Finance minister in the inclusive government from 2009 to 2013 — said the issuance of TBs was clogging the market and questioned why private players were not allowed to use the instruments as legal tender.

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