THE Reserve Bank of Zimbabwe (RBZ) governor Gideon this week increased withdrawal limits for both individuals and corporates barely.
Gono increased the withdrawal limits for individuals and corporates from $1 billion to $5 billion a day.
“As advised to financial institutions on the 3rd of April 2008, the daily cash withdrawal limit for both individuals and corporates was reviewed to $1 billion,” Gono said.
“In order to provide further relief to depositors, the daily cash withdrawal limit to both individuals and corporates has been increased to $5 billion dollars with immediate effect.”
The immediate problem for the banking public is what it can buy. The $5 billion limit will buy fewer commodities next week because of galloping inflation.
Soon the public will be asking for more as inflation continues to erode the limit.
Even at the current prices $5 billion does not buy much.
Economic analyst John Robertson said the $5 billion would barely cover basic expensesÂ and that it was too little for corporates, resulting in multiple accounts.
“We’ve got evidence in the inflation rate, what appeared to be a good figure a month ago has now turned out to be worthless.
Likewise what may appear to be a good figure may not turn out to be so sometime from now,” he said.
Gono increased the amount of local currency that can be exported or imported on a person or his baggage to pay for various travel related expenses at the border posts to $5 billion from $500 million.
Gono admitted that inflation had proven difficult to tame. For this he blamed the failure of the social contract to take off.
He said the RBZ would continue maintaining tight monetary conditions by increasing interest rates.
Unsecured accommodation rate went to 5 000%, up from 4 500% while secured accommodation rates are now pegged at 4 500% from 4 000%.
“It is imperative to note that the Reserve Bank continues to have no appetite for lending money to the banking system, and banking institutions are called upon to mobilise deposits through their normal banking business processes and programmes,” Gono said.
Economic analysts said the interest rates unveiled by Gono were too little considering that inflation is fast approaching the 200 000% mark.
Robertson said the rates are too low as they are quickly eroded by inflation. The move according to him is likely to result in pensioners losing their money.
“These interest rates are damaging the relationship between borrowers and lenders as the latter is likely to watch their money disappear,” said Robertson.
Gono delivered his monetary policy as the inflation rate continued to gallop due to increased money supply.
Broad money supply has been on an upward trend, shooting from 1638,4% in January 2007 to 51 768,8% in November of the same year.
Domestic debt grew by 96 233,6% in November 2007 largely driven by growth in credit to the private sector, 125 348,4%, government credit which was 53 796,1% and claims on public enterprises which amounted to 28 757,2%.
“Gono mentioned the domestic debt but he didn’t comment on where the money came from. He also did not mention the consequences of the domestic debt and how it will move the country further into hyper inflation,” said Robertson.
“There was little information on how the government will fund its operations and requirements in the future.
There was no revelation on what the plans are with the currency as the zeros have become too many resulting in people and companies failing to cope”Â Â Â Â Â
Credit to the private sector continues to dominate domestic debt rising to $307,9 billion in November 2006 and $386.3 trillion in November 2007.
“The increase in lending to the private sector is mainly driven by loans and advances against a background of limited offshore financing,” said Gono.
“The bulk of the funding is used for working capital requirements, impacting adversely on capital developments.”
The RBZ governor blamed the absence of external support as the reason for the continuous reliance of government on domestic bank sources to finance its operations.
In April government debt was at $6,480 quadrillion of which Treasury bills amounted to $2,986 quadrillion.
Credit supplies which were largely restricted to Agricultural Parastatals recorded an annual growth of 28 757,2% from $16,9 billion in November 2006 to $4,9Â trillion in November 2007.
Gono blamed sanctions for the economic crisis but his explanations found few takers in the market.
Economic analyst Tony Hawkins said there was no point pretending that the problems being experienced were as a result of external factors.
“The problem is government expenditure,” Hawkins said.Â
He said the government had created a crisis and were now coming up with artificial ideas to control the crisis.
Though admitting that some beneficiaries of the Basic Commodities Supply Side Intervention (Bacossi) were diverting funds, Gono said the facility will be extended.
He also extended the Agricultural Sector Productivity Enhancement Facility (Aspef).Â
“On application, each company shall commit to producing and delivering specific output levels, over explicit timeframes and the Bacossi support will be extended on a reimbursement basis, based on actual output produced,” Gono said.
Hawkins said the Bacossi was not the answer to the current problems in the industry. “What is required is an open market that is driven by interest rates and other appropriate market forces,” Hawkins said.
An economist with a local commercial bank said although the Bacossi had been essential in saving some companies from collapse, it was essentially a bad idea supporting other bad ideas.
“As a country we are paying the price, the country has lost its pool savings by availing these cheap funds, we cannot build anything because no savings means no investments,” he said.
“We need people from other countries to bring in their savings to sustain the Bacossi, by that we are continuing to destroy our savings.”
By Jeslyn Dendere