THE Reserve Bank of Zimbabwe has warned of a looming credit squeeze in 2024 triggered by a slowdown in the global economy and rising interest rates on International Monetary Fund Special Drawing Rights.
Global economies have been experiencing rising inflation since 2021 due to supply chain disruptions (Covid restrictions, geo-political tensions).
Official figures show that in 2022 global inflation averaged 8.7%. United States inflation rose from 1.4% in January 2021 to a peak of 9.1% in June 2022.
Inflation in the United Kingdom increased from 0.9% in January 2021 to a peak of 9.6% in October 2022.
Global inflationary pressures to remain elevated with global inflation expected at 6.9% in 2023 and 5.8% in 2024 supported by tighter monetary conditions.
In response to rising inflation, central banks aggressively tightened monetary policy.
“Policy rates have risen from near 0% in 2021 to over 4.0% in 2023. As a result, borrowing costs have increased significantly with the key reference rate Secured Overnight Financing Rate (SOFR) increasing from 0.05% in January 2022 to 5.31% in October 2023,” central bank governor John Mangudya said in his pre-budget paper submitted to Parliament this month.
“The tight global monetary and financial conditions have resulted in credit squeeze resulting in higher interest rates i.e., the interest rate on Special Drawing Rights (SDR) increased from 0.05% in August 2021 to 4.198% in October 2023, putting budgetary pressures on countries that have utilised their SDR allocations, including Zimbabwe.”
On 2 August 2021, the board of governors of the International Monetary Fund (IMF) approved a general allocation of SDR 456 billion (US$650 billion) to boost global liquidity.
Zimbabwe received SDR677.4 (US$961 million) which the authorities said would ease the liquidity situation in the economy.
A credit squeeze refers to the control of credit facilities as an instrument of economic policy, associated with restrictions on bank loans and overdrafts, as well as raised interest rates. The central bank chief added that “strong coordination” of monetary and fiscal policy is, therefore, critical to contain these emerging risks and safeguard current stability.
“The monetary stance has been complemented by a tight fiscal stance and these have combined to entrench the obtaining price and exchange rate stability,” Mangudya said.
“The 2024 National Budget should complement the current fiscal and monetary stance in addressing emerging global and domestic risks from growth slowdown, geo-political factors and climatic shocks.”
Finance minister Mthuli Ncube is this month expected to present the 2024 National Budget, which comes a few months after Zimbabwe held general elections.