BOND notes are not adequate to meet the needs of the market, a situation which may force government to plead for an enlargement of the facility from the guarantor, an analyst has said.
The Reserve Bank of Zimbabwe will this month introduce bond notes under the $200 million export incentive facility, which is guaranteed by the African Export-Import Bank (Afreximbank).
It is estimated that bond notes worth $75m would be in circulation by the end of the year.
The cash shortages have raised fears that the central bank would order more notes above the $200m guarantee.
Financial analyst Persistence Gwanyanya said in emailed responses that government was currently in serious financial distress, with 97% of its revenue being gobbled by wages in the first half of the year, leaving only 3% for developmental activities.
“This situation naturally raises the suspicion that government could print more than the $200m Afreximbank facility supporting the bond notes. However, I doubt that the government will print more as it puts the reputation of Afreximbank in jeopardy. Being a reputable international financial institution, I don’t think Afreximbank would want to risk its reputation by being part of this nefarious activity,” Gwanyanya said.
“We wait to see the facility letter and the terms thereof so that we understand the consequences of breaching the terms of the facility.
The only thing that may happen is for the government to increase the facility, as the $200m may not be enough to liquefy the local economy.”
Exports, the biggest sources of liquidity, have performed dismally in the first half of the year, raking in $1,12 billion.
This came at a time when imports were $2,5bn, meaning more money was flowing out of the economy.
Experts say the country needs about $5bn in external credit lines to adequately liquefy the market.
Gwanyanya said the approach of incentivising exporters for outright exports was not the best due to it being a weak link in performance.
“The question is why give an incentive to someone who was going to export anywhere? Any exporter is entitled to the 5% export incentive, even if their exports are falling. The best approach would be to give the incentive on incremental exports. This way the facility would effectively incentivise exporters to export,” he
said.-Newsday
