TBs set to worsen Zim's situation

HARARE - Revelations that government is issuing Treasury Bills to raise money to pay bonuses for the 300 000-plus civil service confirms what we have been saying all along.

Government’s decision to pay the unbudgeted 2016 bonus after pressure from employee unions is likely to worsen the situation as Treasury Bills worth $180 million are expected to be floated in the market to finance these bonus payments.

The stone-broke government is in fact issuing billions worth of TBs that are fuelling the intensifying cash shortages. This also comes as the new bond notes — ushered in to help address the epic cash problems — are losing value dramatically and US dollars have vanished from the open market.

With imports massively outstripping exports, businesses are mostly selling their merchandise in bond notes, making it impossible to finance imports using the surrogate currency, with an informal forex market now discounting the bond note and the Real Time Gross Settlement (RTGS) “dollar”.

With laws of supply and demand at play, Zimbabweans are outrightly refusing to accept the notes as equivalent to US dollars. A key test will come when Zimbabwe reaches the $200 million bond notes threshold backed by a facility provided by Cairo-based Afreximbank.

Government is borrowing money from the domestic market to finance government expenditure, including payments to civil servants, but getting the cash out of banks will be the problem.

Finance minister Patrick Chinamasa admitted the issuance of TBs in the House of Assembly last week, saying that government’s decision to pay the 2016 bonus is likely to worsen the situation.

On the surface, the financial sector remained somewhat resilient despite clear headwinds in the form of growing exposure to TBs, uncertainty around bond notes and a decline in quality borrowers under the economic circumstances.

We are wary of the financial sector as balance sheets become heavily exposed to TBs and as cash balances begin to lean towards bond notes relative to hard forex. The country was estimated to have about $2,1 billion worth of TBs in the market as at February 28, 2017. Zimbabwe faces a huge debt burden.

Its total external debt is estimated at $11, 2 billion, or 79 percent of GDP, at the end of 2016. More than half of it, or $7,5 billion, is in arrears.

If current economic policies continue and donor financing is largely confined to humanitarian assistance in the medium term, the country’s large debt stock would remain unresolved and debt would continue to pile up.

But to win debt relief, Zimbabwe would need to improve ties with the international community and qualify for a global scheme for heavily-indebted poor countries that would lead to debt cancellation after a two-year economic programme.

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