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US dollar liquidity crunch looms



ZIMBABWE may face a United States dollar liquidity crunch in the short term as payment delays for wheat deliveries signal mounting pressure on Treasury to meet its hard currency obligations following the re-dollarisation of the economy, Imara Asset Management says.


Experts say dollarisation in the economy continues apace both in the private and public sectors as the domestic currency loses value. The country’s power utility, Zesa, is seeking to charge for electricity in US dollars to enable it to import electricity from the region.

The government has also been increasing civil servants’ US dollar salaries and allowances to cushion them from high inflation.

“The authorities are also owing farmers the USD portion of the wheat that was delivered well before Christmas which suggests that they don’t have sufficient dollars to hand. Having learned from past experience, we are concerned that such USD expenditure that should be financed through USD tax inflows will instead be ‘created’ at the RBZ,” Imara Asset Management CE John Legat said in a quarterly economic research published this month.

“Put another way, USD credits to domestic private sector bank accounts may not be backed by real USD. We will need to keep a close eye on this; delays in payments from USD nostro accounts to overseas bank accounts to fund genuine invoices would be the first sign that something is amiss. Difficulties in withdrawing USD cash from the bank would be another. We hope that Government and the RBZ have learned their lesson from the 2016 to 2019 period.

“It is for this reason that we were apprehensive when the RBZ Monetary Policy Committee announced the launch of gold backed digital products i.e. digital tokenisation of gold coins ostensibly to complement the current issuance of physical gold coins.

“Despite various concerns — also shared by the IMF — on the use of gold coins as a monetary policy tool; in the original format you could at least take physical possession of the serialised gold coin after purchase. The mechanics of the digitally backed products have not been availed, but we are wary of the initiative coming at a time when the actual coins have not been easily available.”

Imara further said while the forthcoming elections, will pile fiscal pressures on authorities ahead of the next general elections slated for later this year, the injection of ZW dollar liquidity will drive activity on the Zimbabwe Stock Exchange.

“The fact that it is an election year suggests that we could well see rising ZWL liquidity as elections approach; the temptation to give pre-election hand-outs being all too great. This would suggest a continued devaluation of the ZWL and a rising ZSE,” the report reads.

“With less counters listed on the ZSE as compared with 2022, suggests that what excess ZWL liquidity there is, will be focused on the remaining liquid shares such as Delta and Econet, implying a greater upside for such shares than might have been the case previously. Further, well run mid-capitalised shares should also see more investor interest than usual. The opposite will be the case for those shares that have now moved to the VFEX where we should expect to see minimal amounts of trading on the exchange.”

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