Sunday, 30 October 2016


The soon-to-be released bond notes have failed the confidence test with analysts warning the plan was anchored on a shaky foundation.

The Reserve Bank of Zimbabwe (RBZ) will start campaigns tomorrow ahead of the release of the “surrogate” currency next month — six months after announcing plans to roll out the bond notes under the guise of supporting exporters.

The bond notes are coming as a 5% export incentive under the $200 million facility guaranteed by the African Export-Import Bank (Afreximbank).

In a paper, Study on Zimbabwe’s Macroeconomic Stability and Policy Options of September 2016, economist Daniel Makina said the concept of bond notes designed to operate alongside the multicurrency regime can be likened to a mini-currency board that is unorthodox in the sense that it is backed by liability ($200 million facility from Afreximbank).

He said orthodox currency boards were backed by assets in the form of foreign reserves.
Makina said this meant that bond notes cannot be at par with the United States dollar but could have a discounted value reflecting the interest and facility charges of the liability.

“The sweetening of bond notes with a 5% export incentive could not make economic sense because the incentive was directed to existing traditional exporters who would export anyway rather than attracting new non-traditional exporters,” he said.

“Furthermore, there was no study that had been done to find out to what extent the incentive would increase exports.”

Makina noted that the vicious cycle of crises that have beset the economy for nearly two decades created a confidence crisis in institutions.

He said the public had lost trust and confidence in banking institutions to the extent that major dealings with them involved withdrawals of funds for safety.

“If it were not for controls on withdrawals similar to those imposed during the hyperinflation of 2008, the banking sector would have collapsed,” he said.

“The difficulty the public is facing in accessing funds is creating uncertainty as to whether the Deposit Insurance Corporation would be solvent enough to meet demands for repayment in the event of economy-wide collapse of banks,” he said.

“On the other hand, the government might not be able to rescue banks because it does not have the ability to conduct monetary financing due to loss of monetary autonomy brought about by dollarisation.

“All these issues are sapping the public’s confidence and trust of institutions around them.”
The paper was produced in consultation with the Confederation of Zimbabwe Industries and the National Consultative Forum.

The Consumer Council of Zimbabwe (CCZ) said a survey on 300 respondents showed that they were sceptical and scared of being impoverished again after suffering the same fate during the 2007/8 hyperinflationary period.

“It’s not clear how the bond notes will help us, how will you [RBZ] protect consumers as there is fear that bond notes will not be accepted by the market,” said CCZ executive Rosemary Siyachitema at a Zimbabwe National Chamber of Commerce (ZNCC) meeting last week.

Economic researcher Daniel Ndlela said the confidence issue cannot be sorted out because there was no consultation before the announcement that bond notes would be introduced. After the announcement, no consultations were done, he said.

“Confidence [issues around] the bond notes will remain with us until the authorities address the currency in Zimbabwe.

“If the currency is rand, dollar or pound, the currency of a currency is confidence,” Ndlela said, adding that the country was using ad hoc solutions on fiscal and monetary challenges, which was wrong.

The low confidence levels on bond notes comes as rating agency, Moody’s warned of persistent cash shortages ahead of the unveiling of the bond notes.

It said the inability of enterprises and households to obtain sufficient cash for daily transactions would weaken economic activity and put pressure on growth, in turn lowering government revenues.
Growing cash and liquidity challenges in the Zimbabwean banking sector have intensified ahead of the government’s planned introduction of bond notes,” said Zuzana Brixiova, a Moody’s vice-president, senior analyst and co-author of the report, Drivers and Credit Implications of Zimbabwe’s Cash and Liquidity Shortages.

“Although the bond notes are intended to ease the cash shortage, there are concerns in Zimbabwe that they represent the first step towards the return of a domestic currency. This has exacerbated net deposit withdrawals and cash hoarding,” she said.

But Zimbabwean economist Kipson Gundani said very little could be done because lack of confidence was shaped by real historical experiences.

He said the only solution was to do a campaign, which obviously would not be very successful.
“However, if by chance the bond notes are introduced and accepted by major companies, especially public utilities and retailers, and the central bank sticks to its promises, confidence will return due to the power of demonstration. It is important to note that bond notes make a lot of economic sense and what we are seeing are emotional responses from the people,” Gundani said.

“Emotions are emotions. They will heal with time. All the authorities need to do is to progressively enunciate and adhere to good policies that enhance incremental income to people, and avoid previous blunders that killed value.”

RBZ governor John Mangudya said change was painful and monetary authorities came with the intervention “because we don’t want to lose money”.

Asked when bond notes would be introduced at a ZNCC meeting last week, Mangudya said, “I always want to ask why you want the date. It’s terrible in this economy, you give them information in good faith and they use it as ammunition. You need to have equilibrium of the information you give and what you will not give.”

ZNCC president Davison Norupiri said there was need for moral suasion as there were fears of hyperinflation among the public.

“It’s no longer an issue of people not understanding, it’s an issue of confidence and in some areas it’s an issue of not understanding; people need to get information through the campaigns,” he said.
Zimbabwe abandoned its own currency in 2009 after RBZ went on a cash printing spree to finance dubious government programmes that drove inflation to about 500 billion percent. standard


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