Treasury bills mop up $305bn excess liquidity
THE Government mopped up a total of $305,9 billion using Treasury Bills in the nine months to September 30, 2023 which went towards partly financing the 2023 National Budget deficit and smoothing out cashflows.
The intervention in the market helped to snuff out excess liquidity that would have been available to put pressure on the exchange rate, which saw serious volatility in the first quarter.
Initially, the Government had planned to borrow $276 billion in the period under review but ended up borrowing more in support of the contractionary monetary policy being pursued to tame inflation.
Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube presenting the 2024 National Budget Statement last week said, “The issuances were done through private placement, with 90 day and 180 day having an average coupon rate of 81 percent and 82 percent, while 270 day and 365 day had average coupon rates of 83 percent and 88 percent, respectively.”
Of the amount raised through the process, banks have subscribed the most to the instrument despite pension funds failing to reach their prescribed asset threshold.
“Most of the resources were raised from the banking sector accounting for 99 percent, while the non banking sector provided the remaining one percent. This is notwithstanding the requirement that pension funds should comply with the prescribed asset status of 20 percent of their investable resources, against the current levels of seven percent,” Minister Ncube added.
Economist Dr Prosper Chitambara believes the implementation of a contractionary monetary policy has proven instrumental in the efforts to combat hyperinflation and stabilise the Zimbabwe dollar exchange rate.
“By reducing the money supply through the issuance of TBs, we have successfully curbed excess liquidity, fostering a more stable economic environment,” he said.
Zimbabwe initially targeted the year on year inflation to close at 60 65 percent, but the use of TBs has slowed down inflation and the Government now expects the rate to close the year below 20 percent.
“The significant drop in our yearly inflation target from around 60 percent to below 20 percent is testament to the efficacy of the contractionary measures. These policies have restored confidence in our economy and created a foundation for sustainable economic growth,” Dr. Chitambara added.
While the contractionary approach may have initially posed challenges, the long term benefits are evident. The moderation in inflation not only safeguards the purchasing power of citizens’ incomes but also promotes a conducive atmosphere for both domestic and foreign investments.
Analyst Namatai Maeresera said it was crucial to acknowledge the delicate balance required in executing contractionary policies. “Striking the right chord between controlling inflation and ensuring adequate liquidity for economic activities demands astute policymaking, and our recent success underscores the effectiveness of our approach.”
According to the Treasury, the 2023 budget deficit was also partly financed through a trade finance structure of US$400 million from AFREXIMBANK and US$9 million disbursement from active loans.
“To year end, if necessary, the Government will raise additional resources from domestic and external borrowing to finance the deficit,” the minister added.
Dr Chitambara believes that as Zimbabwe navigates the intricacies of monetary policy, the focus should now shift towards maintaining the newfound stability. “Continuous monitoring and adjustments will be vital to prevent any resurgence of inflationary pressures while fostering sustained economic development,” he concluded. herald
