BOND NOTES PRESENTATION TO ICAZ 3 NOVEMBER 2016 1 MAJOR - - PowerPoint PPT Presentation

BOND NOTES

PRESENTATION TO ICAZ

3 NOVEMBER 2016

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MAJOR CHALLENGES & CONSEQUENCES

• A. TWIN DEFICITS
• 1. FISCAL
• 2. CURRENT ACCOUNT

B. APPRECIATION OF THE US DOLLAR

• C. CONSEQUENCES OF THE ABOVE

i) CASH SHORTAGES ii) INADEQUATE SUPPLY OF FOREIGN CURRENCY TO MEET DEMAND iii) DYSFUNCTIONAL MULTICURRENCY SYSTEM

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FISCAL DEFICIT

• Government expenditures far outstripping revenues – largely a

reflection of the current economic environment; company closures, scaling down operations, low capacity utilisation, competition from imports

• Fiscal deficit of over $600 million.
• NB Government is not a producer of FX but a consumer
• Need to deal with the current fiscal deficit – HOW?

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TRADE IMBALANCES

• The adverse impact of low domestic production;
• Lack of competitiveness – due to use of antiquated and obsolete machinery;
• Huge imports - anything and everything (All sorts of trinkets)
• Fewer earners of Foreign currency; more spenders
• Trade deficits have increased from:-
• moderate levels of about US$400 million during 2004 - 2006 to
• Unsustainable levels of US$2.5 billion between 2011-2015.
• Persistent trade deficits mean we are haemorrhaging the economy by exporting

liquidity, jobs and economic development;

• Consequently, cannot even import cash (funded from Nostro accounts)
• Situation is worsened by the need to import food due to the drought

CASH SHORTAGES

• The country is experiencing acute cash shortages, evidenced by long queues at some banks, limited

cash availability at ATMs, reduction of daily withdrawal limits.

• The Cash Shortages are in themselves a symptom of deeper underlying issues, which include:

i. The Dysfunctional multi-currency system as a result of a strong USD (reserve currency).

• ii. Higher demand for FX to import consumer goods in the face of low levels of local

production;

• iii. Inefficient distribution and utilisation of scarce FX resources;
• iv. Low usage of plastic money and other non-cash payment platforms; Country now very

informalized – sector which is dominated by cash transactions; v. Low consumer and business confidence as reflected by high appetite to keep cash outside the banking system;

• vi. Illicit financial flows and externalisation as the Zimbabwean economy has become a bureau

de change

• vii. Buying and selling of cash - Externalisation

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THRUST OF POLICY MEASURES

• The Bank on 4 May 2016 announced Measures to Deal with the Cash Shortages

whilst Simultaneously Stabilising and Stimulating the Economy. The major

• bjectives of the measures were:
• i. Restoring the fundamental principles of the multi-currency system through increasing

the availability and usage of the other currencies within the multi-currency basket;

• ii. Ensuring that foreign exchange is efficiently utilised and managed within the context of

its supply and demand; and.

• iii. Incentivising local production and generation of foreign exchange in furtherance of the

'Make and Buy Zimbabwe ' philosophy as advocated by the Buy Zimbabwe Campaign.

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POLICY MEASURES

• Limits on cash withdrawals;
• Promoting use of cards and other non-cash platforms;
• Importation of other currencies (esp. ZAR);
• Export Incentive scheme of up to 5% for exporters;
• Promoting efficient use of scarce foreign currency

(Priority List);

• Reduction in lending rates to promote domestic

production

• Exporters are the major earners of Foreign currency – the liquidity

in the economy

• Export Bonus Scheme aimed at incentivising them to produce and

export more and provide the much needed and much sought for FX

• Funding mechanism through BOND NOTES in order to preserve

the US$200 million Nostro Stabilisation and Export Finance Facility.

• Bond Notes being printed outside the country will be in the market

sometime this month.

• Bond notes will be gradually released into the economy in line with

export performance through normal banking channels.

• The Bank has already begun awareness campaigns with the

starting point being to highlight that Bond notes are coming in as an export incentive; Next will be the features of the notes.

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Export Incentive Scheme of up to 5%

• Bond notes will operate on a 1:1 basis with USD
• No new accounts will be opened for Bond Notes as these will be

deposited into one’s US dollar account;

• The public should not expect Bond notes to immediately solve the

cash shortages as bond notes are primarily being issued under the export incentive scheme;

• Therefore, it is imperative that we continue to encourage the use of

non-cash payment platforms;

• Working with banks to increase the spread of POS machines and

reduce charges; encouraging merchants to accept electronic payments; encouraging interoperability of payment systems.

• Bank has negotiated offshore facilities to ease the pressure of
• utstanding foreign payments.
• Critical for the economy to produce and export
• We are using foreign currency (strong) as our domestic currency

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OPERATIONAL ISSUES

CONCLUSION

• We need to produce and export to earn the much needed liquidity in the

country

• We need to substitute imports through local production to conserve foreign

currency

• Need to deal decisively with the fiscal deficit??
• Confidence, confidence and confidence!!!!

THANK YOU

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