Ensuring Financial Sector Stability....

"Ensuring Financial Sector Stability". What a fitting theme for the Monetary Policy Statement issued by the Reserve Bank of Zimbabwe today. As i read through the document and i am still reading it, (its only 57 pages for a change! straight to point) the underlying theme appears to capture exactly what is happening and what needs to happen in our beloved Zimbabwe.

Its interesting to note that the Global financial crisis has affected everyone in almost equal measure. The uncertainty in the world means few institutions are willing to offer lines of credit to anyone, which in itself means less money to our very own financial institutions and less returns to the lending countries. If Zimbabwe had its own currency would the situation be any different. I personally think it would be worse and i will try and show why. The reason Zimbabwe is where it is today is because Zimbabwe has very few options to play around with interest rates or any other policies to influence the RAND or USD. Its ironic is it not. Investors trust our policies because there is very little we can do. Lets face it our record with managing our own currency is well known and documented. We need more time to redeem ourselves and build confidence back in our economy. Surely it would help if we could print our own currency, its been easy for some countries to do "Quantitative Easing"- printing money in simple english. But has it helped? NO.

For us to have little control is a good thing, because it allows us to focus on other more important things. I think that this is a good thing and should allow our monetary authorities to concentrate on policies that encourage money that is already in the country to stay and attract even more money that is hunting for a good return on capital to come and stay in Zimbabwe. The capital account is in a mess despite the increase in our exports. Imports have ballooned and clearly authorities must find ways of encouraging more exports, assuming that all imports are necessary to close the gap. Strengthening our financial sector and ensuring that money flows freely is also a measure that should be pursued vigorously. After all most of the growth opportunities are here and will be for a long time to come because of the country's abundant primary resources. All the authorities need to do is to ensure that our banks are running properly and are well capitalised.

Its also interesting to note that the level of deposits in the economy has somewhat slowed down and struggling to break $3.3bn, despite significant economic growth. Government Revenue collections are on the rise too, surely this an indication that there is more money circulating in our economy. The smaller banks were singled out as being of less systematic importance - they account for 5% of total deposits in the country. Unfortunately in banking a bank failure is a bank failure and it affects the way we think about all banks. In one of the boldest moves yet the RBZ has given a deadline to under-capitalised institutions to make amends or be shut down. This will certainly lead to a few interesting transactions/or court actions or both in coming weeks! Watch the press! Depositors' funds need to be protected. Its the right thing to do. No capital no bank licence! Why extend and postpone bank failures.

A raft of measures to ensure that banks stay within their mandates was also announced. All this is welcome news and should give depositors some comfort. I hope its not too late though. The acknowledgement of a liquidity challenge whilst welcome is worrying and points to reduced participation of local investors in our markets because of these constraints. What i haven't picked up so far is how the country will attract more inflows into the economy to deal with this challenge. Limiting cash withdrawals for high value transactions of 10,000 will be useful in the short-term but it sends the wrong message to the banking public and may very well encourage them to keep cash at home. I hope that this will be lifted in a week or two.

The introduction of a International Financial Services Centre to ensure the free flow of funds in the country will be a welcome move and one that should be implemented without delay if Zimbabwe is enjoy Foreign Direct Investments and foreign cash inflows in general. For the uninitiated this has worked well in Botswana follow this link http://www.ifsc.co.bw or this IFC review http://www.ifcreview.com/default.aspx

The full monetary policy statement can be downloaded here http://www.rbz.co.zw/pdfs/2012%20MPS/MPS%20JANUARY%202012.pdf