'Quasi-fiscal policies obstructing RBZ role'

'Quasi-fiscal policies obstructing RBZ role'
Published: 07 June 2018
THE Zimbabwe Economic Policy Analysis and Research Unit (ZEPARU) says the country still lags behind in trying to solve economic and financial malfunctions in the market, mainly because commercial banks and financial institutions are not fully playing their expected roles in the economy.

ZEPARU says financial sector distortions have diverted the central bank from its major oversight role to financing the productive sector which is a prerogative of commercial banks and the private sector.

Sanderson Abel, a keynote speaker during a consultative workshop held last week said involving the central bank in quasi - fiscal activities were counterproductive.

"Central bank intervention in financing brings in distortions in the market as it competes with commercial banks and micro-finance institutions in providing funding to the productive sectors."

"RBZ should stick to its supervisory mandate and should never get involved in quasi-fiscal activities. Also, the central bank should not peg interest rates," he said.

Commenting on the use of bond notes in the market, Abel argued that the continued use of the provisional currency had given rise to several challenges that have cemented financial distortions in the country.

"The continued use of bond notes in the market has given rise to the disappearance of the US dollar, which has some of the problems; emergency of parallel pricing structures, sale of hard currency at a premium, currency is no longer circulating, no deposits of hard currency into banks and that tiered pricing mechanisms have developed," he highlighted.

Abel further highlighted that the mismatch between RTGS and real money was causing financial failure in the country.

"The growth in RTGS balances is not consistent with real money balances in the economy, giving rise to inflationary pressures which then cause financial alarms," he said, adding that the advent of mobile financial services has created an uneven playing field between banks and mobile network operators.

He also blamed the government for failing to regulate non-market behaviour as a major factor influencing financial distortions in the country, saying that government was failing to provide a stable market.

According to Abel, government should have a borrowing plan, underpinned by a statute and should also curb excessive borrowing.

The trained economist said there was need to revive the smooth flow of the financial sector and that government should play a crucial role in resource mobilisation, facilitate trade, assist in price discovery and help in risk management. He said poorly-managed financial institutions affected the proper functioning of the economy.

Commenting on the presentation, financial expert Alphious Ncube said the country was making a fatal mistake by allowing the government to borrow from the central bank as it compromises the independence and functionality of the bank. Ncube opined that this made it hard for the bank to make fiscal follow-ups on outstanding issues.
- fingaz
Tags: RBZ,


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