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

BOND NOTES PRESENTATION TO ICAZ 3 NOVEMBER 2016 1

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 2

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 ? 3

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 4

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 5

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 objectives 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. 6

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 7

Export Incentive Scheme of up to 5% • 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. 8

OPERATIONAL ISSUES • 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 outstanding foreign payments. • Critical for the economy to produce and export • We are using foreign currency (strong) as our domestic currency 9

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 10