By Ndafadza Madanha
RESERVE bank of Zimbabwe (RBZ) governor John Mangudya says concern over the issuance of treasury bills (TBs) is unnecessary as the practice is common practice world over.
His remarks come at a time when some market watchers have intimated that the issuance of TBs was crowding out the private sector and could have a negative impact on the economy.
However, Mangudya said the criticism was largely “textbook economics” as the majority of TBs was intended to bolster the country’s production capacity.
“Issuance of TBs is a common practice the world over and the criticism is largely text book criticism.
“The bulk of TBs issued will go a long way in reviving production in the private sector as companies are receiving payment for the services they rendered. So issuance of TBs will actually help in growing the economy so I don’t see how the private sector is overcrowded.
“The TBs issued to fund government shortfalls represent a small fraction of the TBs issued,” said Mangudya after touring Best Food Processors Plant in Norton.
To date the central bank has issued TBs amounting US$2b which consist of long, medium and short dated TBs.
TBs that fall into the long dated category are the US$549m issued by ZAMCO to buy Non Performing Loans from financial institutions.
Another US$300m of long dated TBs was issued to recapitalize institutions such as the RBZ, Agribank, IDBZ, Caps.
Medium dated TBs consist of US$750m which relate to the debt accrued by the central bank at the height of its quasi fiscal activities.
The remaining US$450m is made up of short-medium TBs issued to cover shortfalls in government expenditure.
Mangudya also dismissed notions that by capping interest rates for lending at 12 percent the apex bank had effectively curtailed lending to productive sectors of the economy.
“That is not true before we intervened banks were not lending owing to the NPLs and the high interest rates discourage borrowing. With interest rates of up to 25 percent what business are you doing to get a margin of 30 percent. Banks need to recognize this is a US$ economy and the federal Reserve increased its rates to one percent recently so they should take a cue from that and price accordingly and stop benchmarking as if we use the Zimdollar”.
He added that the only regional banks extending credit lines to Zimbabwe are PTA and Afrexim bank and their interest rates did not warrant the high margins passed to borrowers by the local banks.
Turning to the delay in processing of foreign payments Mangudya said the bank will by the end of this month draw down on the US$70m nostro facility announced in his monetary statement.
He said the nostro stabilisation facility of US$70 million coupled with the tobacco selling season will go a long way resolving the delays in foreign payments.