Online Reporter
Martin Kadzere
THE Reserve Bank of Zimbabwe (RBZ) has advised local banks to sell some of their investments and hedging positions to raise money to meet their statutory and other obligations.
This emerged following a Monetary Policy Committee review meeting between the Bankers Association of Zimbabwe (BAZ) and the central bank Governor, Dr John Mushayavanhu, last week where bankers presented the challenges they are facing due to liquidity constraints.
During the meeting, the BAZ also highlighted other issues impacting their operations.
These included lack of transparency in foreign currency management, traded volumes and exchange rate determination and the need for greater transparency in the sharing of Treasury Bills (TBs) maturity profiles.
Liquidity constraints emerged as the most pressing issue, with bankers highlighting their severe impact on lending activities and the ability to meet payment obligations, a number of sources who attended the meeting said.
Critically, bankers expressed concern over their inability to meet tax obligations to the Zimbabwe Revenue Authority (ZIMRA).
This has resulted in significant penalties for non-compliance and the enforcement of account garnishment by ZIMRA.
“The RBZ advised that the current monetary policy stance is on track as it has resulted in stability in the demand and supply of forex in the market, a stable exchange rate and low inflation,” said an official statement on the outcome of the meeting.
“On the liquidity situation, RBZ insists that there is no liquidity challenge as the banking sector still records end of day liquidity surpluses of +/-ZIG1,3 billion.
“Banks were urged to liquidate some of their investments and hedging positions to raise more ZiG to pay off outstanding amounts to ZIMRA and other liquidity gaps.”
Bankers who attended the meeting described how the liquidity crunch is “severely hindering” their ability to extend credit to businesses and individuals.
“The Reserve Bank of Zimbabwe maintained that its current monetary policy is effective, citing stability in the foreign currency market, a stable exchange rate and low inflation,” said one source.
Another said the central bank countered the claims of a liquidity crunch, saying the banking sector was recording daily closing liquidity surpluses averaging approximately ZiG1,3 billion.
“The RBZ reiterated its stance that no liquidity crunch exists within the market, citing significant daily surpluses recorded within the banking sector,” yet another source said.
BAZ president Mr Lawrence Nyazema confirmed the meeting, describing the engagement as productive.
“We had a very good meeting with the Governor, and I would say it was the best engagement we have ever had.
“We were given the opportunity to speak openly about the challenges we were facing, and the Governor showed interest in listening to our concerns,” he said.
“Regarding the liquidation of assets, the Governor advised those who had invested in speculative or non-core assets to sell them to get out of those speculative assets and raise the money. This does not really affect everyone but only members who might have acquired such assets.”
Regarding the exchange rate, the central bank maintained the current system, driven by willing buyers and willing sellers, accurately reflects market dynamics and is supported by adequate foreign currency reserves.
“The central bank argued that the current exchange rate regime is market driven and the rate is in line with forex reserve,” said the statement.
Despite concerns raised by some economic players regarding a liquidity crunch, the Government expressed satisfaction with the ongoing liquidity management programme designed to maintain macroeconomic stability.
In an interview on Tuesday, Finance, Economic Development and Investment Promotion Minister Professor Mthuli Ncube said the primary objective of the liquidity management programme was to safeguard the domestic currency.
By curbing excessive liquidity growth, a key driver of currency volatility, instability and, ultimately, inflationary pressures, the programme seeks to maintain macroeconomic stability.
“The issue in terms of liquidity has been really the protection of the domestic currency, where we wanted to curtail the growth of liquidity, because any excessive growth of liquidity will impact the volatility of the currency and hence macroeconomic instability in general,” Minister Ncube said.
“At the moment, we feel that things are being managed in the right way,” he added.
Dr Mushayavanhu singled out the inactive interbank market as the primary challenge, highlighting the reluctance of banks to lend to each other.
He noted that daily liquidity surpluses have persisted since September and to manage excess liquidity, the central bank had been sterilising it daily by issuing non-negotiable certificates of deposit (NNCDs) at a zero percent interest rate.
“Liquidity is concentrated within a few banks, hindering efficient resource allocation within the banking sector,” said Dr Mushayavanhu. “In a normal money market, banks that are long should lend overnight or even over 30, 60, 90 or 180 days to banks that are short at the bank policy rate or higher against security.
“Surprisingly, instead of lending to the bank next door and getting interest income, some banks are content with RBZ taking their excess funds and parking them in NNCDs at zero interest.”
ZIMRA tax obligations
On ZIMRA tax obligations, bankers expressed concern over their inability to fulfil them, citing liquidity constraints as a significant factor.
Minister Ncube said it was unacceptable to have any actions that hinder business operations, while urging businesses to maintain full tax compliance.
“Certainly, we do not want to tolerate any impediments to business but we also (urge) responsible tax behaviour,” said Minister Ncube in an interview on Tuesday.
He acknowledged that, while the issue primarily falls under operational procedures, a significant volume of complaints would necessitate a Government review.
However, Minister Ncube encouraged affected entities to actively engage with ZIMRA to explore potential solutions, such as entering into mutually agreeable payment plans to address their tax obligations.
“ZIMRA is open for engagements . . . (they should work together on) how the payments can be resolved through a payment plan.”
ZIMRA spokesperson Mr Gladman Njanji said ZIMRA is a statutory body legally mandated by the Government to collect revenue in accordance with established legislation, which does not grant the authority any discretion to deviate from its legal obligations.
Mr Njanji said the Value-Added Tax (VAT) Act mandates a credit-based tax accounting system for all operators, with specific exemptions for local authorities, public authorities and not-for-profit associations. Similarly, income tax is levied on both accrued and received income.
He, however, said businesses facing complex challenges are encouraged to engage with ZIMRA to discuss their specific circumstances and explore potential solutions for tax compliance.
