Mounting Pressure on RBZ Governor Over Sector-Wide Liquidity Crunch
The Reserve Bank of Zimbabwe (RBZ) governor, John Mushayavanhu, is under increasing pressure from industry and commerce leaders to address the escalating liquidity crisis crippling operations across sectors.
Mushayavanhu met with business leaders last week, who voiced their concerns. They said the liquidity squeeze, resulting from the central bank’s tight monetary policy, has left businesses struggling to meet financial obligations and maintain operational efficiency.
Zimbabwe National Chamber of Commerce (ZNCC) CEO, Christopher Mugaga, confirmed the business leaders’ meeting with Mushayavanhu to Business Times. He said:
We just came out of a meeting with the central bank governor on the Monetary Policy Statement submissions where we discussed the current crunch in terms of the Zimbabwe Gold [ZiG] liquidity.
So in our engagements with the central bank governor, we raised the issue of liquidity squeeze. We strongly believe there is a liquidity crunch hence we discussed with the governor the need to address that challenge.
The crunch has disrupted operations in most companies resulting in companies struggling to meet their ZWG obligations. We are hoping there will be an injection in the market.
Also speaking to Business Times, ZNCC president Tapiwa Karoro suggested that the RBZ raise the foreign currency retention portion to above 75%, helping industry players access more forex.
Sekai Kuvarika, CEO of the Confederation of Zimbabwe Industries (CZI), said:
Generally, the market is short in both USD and ZWG because of the increase in reserve requirements which mainly impacted banks and has constrained them on the lending side impacting industry and the economy.
Working capital constraints are a major issue at the moment. The resultant vicious cycle of increased demand for that liquidity may lead to defaults across value chains and affect credit cycles.
Economists believe the RBZ’s efforts to control inflation and stabilize the Zimbabwe Gold (ZiG) currency have led to a liquidity crunch.
However, RBZ deputy governor, Innocent Matshe, defended the bank’s policies, stressing the importance of maintaining balance. Said Matshe:
Too much liquidity will cause inflationary pressures in the economy and instability in the exchange rate.
On the other extreme, too little liquidity will lead to settlement failures and financial instability hence there is a need to balance liquidity to support the smooth functioning of the banking sector and payment systems.
Economist Professor Gift Mugano criticized the RBZ’s tight monetary policy, arguing it hasn’t addressed the underlying economic challenges. Said Mugano:
From its introduction, ZiG was not backed by fundamentals hence it was doomed to fail.
The government’s current approach-delaying payments to suppliers and, contractors and exporters’ 25% surrender portion- is unsustainable.
These policies are industry and will only exacerbate the economic crisis.
You don’t hold a payment of importers and suppliers, you don’t hold a payment of contractors, and you don’t hold a payment of exporters when you hold 25% of the surrender requirement portion. The authorities are killing the industry there and that will not sustain ZiG.
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