By Clemence Munyukwe
The decision by Treasury to coerce Old Mutual and the National Social Security Authority (NSSA) to fund the March constitutional referendum had the effect of straining smaller banks after the financial behemoths mopped up their funds held in the financial system to comply with government’s request.
Finance Minister Tendai Biti told Parliament last week that the liquidity situation confronting the country’s economy worsened, with the smaller banks being the worst affected, after NSSA and Old Mutual were made to scurry around for the US$20 million apiece in order to bankroll the referendum on the new Constitution .
“What we did on the referendum, we cannot repeat it,” he told members of the House of Assembly before the dissolution of Parliament last week.
“On the referendum, we borrowed US$40 million from NSSA and Old Mutual. As a result, people cannot borrow from the banks because NSSA and Old Mutual provide 60 percent of the on-shore lending that is in our banking system.
“The smaller banks are crying right now because they traditionally depend on money that they borrow from NSSA and Old Mutual,” he added.
Recently, the Bankers Association of Zimbabwe revealed that total deposits in banks have declined to US$3,7 billion from US$4,2 billion due to the liquidity crisis rattling the domestic market.
Statistics show that more than 70 percent of the deposits are with foreign-owned banks, which only number up to about five.
Despite the illiquid market conditions stemming from a poorly performing economy and lack of foreign funding, the Reserve Bank of Zimbabwe (RBZ) has remained on top of the situation despite being hamstrung by its inability to exercise the lender of last resort function.
RBZ governor, Gideon Gono has repeatedly assured the market that the sector remains stable despite the harsh operating environment.
To keep the sector afloat, Gono has adopted moral suasion and a cocktail of other measures to keep the industry in shape. He has also kept players operating in the industry on their toes by insisting that they should regularly shore up their capital thresholds since capital is their last line of defence.
Gono who obviously feels the heat whenever pressure is brought to bear on the banking sector might be relieved to know that government will not repeat the same mistake of funding polls by crowding out the private sector.
Attempts to get comment on the impact of the new measures from Gono proved fruitless at the time of going to press as he was said to be out of the country since last Friday, and is not expected back before Tuesday next week.
But Biti told Parliament that the negative consequences emanating from the US$40 million raised from Old Mutual and NSSA means that government will not follow the same route to raise funds for the forthcoming polls.
President Robert Mugabe has proclaimed July 31 as the date for harmonised polls, even though there are challenges in the Constitutional Court for voting to be moved beyond that date.
As the poll dispute rages on, Biti said as of now there were no funds to run elections and ruled out new taxes to cover the gap saying that would take months and would not serve the current purpose.
“In any event, even though I was given authority by Cabinet to raise taxes, we must remember that elections will come and go in one day. We do not want to implement certain things that will kill the economy. Some of these policies if you implement them have got the effect of crowding out the economy and killing the economy,” said Biti.
He revealed that there was no money coming from diamonds to help in the electoral process, saying from US$800 million earned last year, Treasury should have gotten US$400 million, but only US$43 million was realised from the sale of the gems.
“To get money from Hon. (Obert) Mpofu, I do not have super powers to order Hon. Mpofu. I wish I had because I will shoot him – to get money from diamonds. It requires political will. Unfortunately, that is not coming. That is the internal aspect,” noted Biti.
At last month’s Southern African Development Community (SADC) summit in Mozambique, the regional body’s executive secretary Tomaz Salomao pledged to visit every member State of the regional body to plead for funds for Zimbabwe’s elections. Biti volunteered to accompany him on such a junket.
“No-one wants to put money in a black hole. So people are saying, donors are saying this and SADC is saying that, we want to see guarantees that this will be a sustainable election because we do not want to fund something that is going to be a false election like the June 28 elections for instance, which everyone will question,” said Biti. The Financial Gazette