Interbank facility won't solve Zim liquidity crisis

Published: 31 March 2014

THE $100 million interbank loan facility granted to Zimbabwe by the Africa Export and Import Bank (Afrexim Bank) will not solve Zimbabwe's liquidity challenges, economists say.

Analysts said recapitalisation of the Reserve Bank of Zimbabwe (RBZ) by at least $500 million is the way forward.

Leading independent economist, Erich Bloch told businessdaily that the Afrexim Bank bail-out will only ease the situation but not solve the crisis.

He said the $100 million is insufficient to restore the central bank's full capacity as lender of last resort.

"...there is a combination of things government has to work in order for the situation to improve," he said.

"Firstly, they need to recapitalise the central bank to a tune of about to a tune of about $500 million, restore the international image, and modify indigenisation laws. Without these rectifications the interbank environment will remain more less the same," Bloch said.

Issis Mwale, another analyst said the loan is paltry in light of the "gigantic task" it should achieve.

"Government needs to source about half a billion dollars for the interbank facility to function. Without a functional central bank the situation is going to get worse," said Mwale, adding that "the $100 million is merely going to ease the problem but not solve the liquidity crunch".

According to Finance minister Patrick Chinamasa, the loan will see the establishment of an inter-bank market and the recapitalisation of the RBZ, and by doing so, the central bank will resume the role of banker to government.

"This inter-bank market is a necessary first step or first resort to build confidence within and among the local financial institutions, that way overcoming the liquidity problem as banks trade with each other," he said recently at the launch of the facility.

The interbank market has been mothballed since 2009, when the country ditched its worthless currency for a multiple currency system.

Currently, each bank is fending for itself as the country does not have a formal interbank market. During the inclusive government, about $7 million was provided for the restoration of the banker of last resort function of the RBZ.

Over the years, the RBZ accumulated a debt, exceeding $1,1 billion, mainly as a consequence of the pre-GNU regime pressurising it to undertake numerous activities generally beyond the normal functions of a central bank.

Included in the mammoth indebtedness of RBZ is sovereign debt of $452,6 million, $439 million of domestic debt, non-resident institutional debt of $110 million, and central bank lines of credit amounting to $80,2 million.

Independent economist Chris Mugaga, said the Afrexim Bank loan will not rejuvenate the interbank market as it is "too minute to make a difference"

"This loan will only induce an amount of confidence to the sector, but it is totally impossible for the loan to reduce the current liquidity problems as it is not even sufficient," Mugaga said.

Mugaga reiterated Bloch's sentiment that the only way to rejuvenate the interbank market is through "sufficient central bank recapitalisation".
- dailynews