Zimbabwean banks need to stop lending to government as their exposure to Treasury Bills (TBs) could work against the sector in the future, a local think tank has warned.
In its 2018 Economic Review and Outlook, Econometer Global Capital (Econometer), warned that government expenditure increases had continued to far outweigh growth in revenue resulting in bloated budget deficit.
“The government has been financing its budget through Treasury Bills issuance and borrowings from the RBZ. The banking sector’s exposure to government debt is more than 33 percent of total assets when compared to just over 4,0 percent two years previous, with most of this debt rolled over.
“This model is ultimately unsustainable and banks will soon have to stop lending to the government, the research firm said.
Fiscal imbalances are a major source of current economic challenges, according to Econometer, with the think-tank pointing out that prospects for the government to clear its arrears with various multilateral lenders remains slim until 2019, as limited scope for economic growth will continue to constrain fiscal revenues.
“We hold the view that the economy continues to face a precarious fiscal position despite some favourable interventions by the Finance minister through the 2018 budget.
“The government is still struggling to pay civil services salaries with 2017 bonus payments yet to be fully paid, struggling to pay civil service bonuses points to a continued weak fiscal position,” the firm said.
In 2017, annual revenue collections amounted to $3,8 billon against a target of $3,4 billion, resulting in a positive variance of 10,3 percent.
Revenue collections for the year 2017 improved by 15,5 percent from the $3,1 billion collected in 2016.
“However, growth in revenue has been slower than growth in Government expenditure resulting in widening fiscal deficit. As of September 2017 when data was last available, budget deficit stood at $1,8 billion.
“Zimbabwe’s net external trading position is of great importance as it is a major determinant of foreign currency supply in the economy.
“The current cash crisis is to some extent a result of persistent trade deficit. Over the years, exports have been falling short of imports resulting in trade deficit widening.
“However, RBZ’s export promotion measures including export incentives resulted in growth in exports whilst restrictive measures such as Statutory
Instrument 64, import prioritisation and foreign payments gridlocks have resulted in lower import bill and therefore an improvement on trade deficit in 2017 to $1,5 billion from $1,9 billion in 2016,” Econometer said projecting a negative trade balance as the country remains a net importer over 2018. — The Financial Gazette