20 January 2012
RESERVE Bank of Zimbabwe Governor Dr Gideon Gono has given assurances that the domestic financial sector is safe and sound despite facing numerous financial and economic challenges.
Dr Gono made the remarks at the Confederation of Zimbabwe Industries economic seminar in Harare yesterday, pointing out that severe liquidity challenges were fertile ground for financial sector instability.
The central bank governor assured the nation that the sector was safe and sound with 96 percent in deposits, assets and market share reportedly in the hands of the strongest banks with troubled banks holding the balance.
“As of December 31, 2011 the strongest banks held 96 percent of the market share. They had 97,3 percent share of assets and 96,1 percent share of loans while troubled banks held 4,1 percent share of assets, 2,6 percent market of deposits and 3,84 percent loans. It is about values and not about the numbers,” said Dr Gono.
“They (troubled banks) may not be systemically important when we do the evaluation. Looking at the current state of affairs, the sector is generally safe and sound inspite of a lot of constraints the sector is facing,” he said.
But Dr Gono emphasised that the current situation was precarious in that neither the central bank nor Treasury had financial capacity to intervene in the event of a major liquidity crisis.
The central bank requires more than US$150 million to effectively perform its lender of last resort function and participate in financial intermediation by determining accommodation rates to influence interest rates.
An unnamed foreign financial institution has pledged more than US$100 million to Zimbabwe for purposes of reviving the apex bank’s lender of last resort function and Dr Gono said this should be pursued without delay.
To alleviate liquidity constraints he proposed introduction of Government paper such as Treasury bills to unlock funds currently circulating outside the formal banking system and securitising the country’s resources. The securitisation would entail setting structures to derive value out of assets such as minerals and housing stock.
Speaking at the same occasion, economist Professor Tony Hawkins dismissed Finance Minister Tendai Biti’s economic growth projections for the current year, contained in his 2012 National Budget statement.
Professor Hawkins said the economy was highly likely to lose its growth momentum and expand, at most, by 5 percent while gross domestic product and inflation would increase by 7 percent and 9,3 percent respectively.
But in his Budget statement Minister Biti said the economy would expand by 9,4 percent driven by improved performance and agriculture and mining while inflation would close the year around 5 percent.
Government’s move to protect fragile industries is seen pushing up prices and consequently putting pressure on inflation.
“I think they should have been smoking something when they made these projections,” said Prof Hawkins.
The University of Zimbabwe professor of economics based his forecast on the fact that Zimbabwe was presently reliant on resource driven growth, which was likely to suffer as global mineral prices look set to take a dive.
He also pointed out that there was likelihood of reduced output from the agriculture sector this season in respect of major crops namely maize, tobacco, cotton and soya due to factors associated with weather and key inputs.
Output from the manufacturing sector is also seen at reduced levels due to expected increased competition from cheaper imports from South Africa with the rand seen losing ground against the US dollar.
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