Jury Still Out On Bond Notes

By Ndamu Sandu
The introduction of bond notes led to an increase in exports but the surrogate currency has not alleviated Zimbabwe’s foreign currency shortages, analysts have said.

Reserve Bank of Zimbabwe (RBZ) governor John Mangudya told a parliamentary portfolio committee last week that the bond notes project had been a success and he, as such, would not resign.

Legislators had asked Mangudya why he had not resigned since the bond notes failed. Prior to the launch of the surrogate currency in 2016, Mangudya declared he would resign if the project failed.

In his monetary policy statement, Mangudya said exports had been on the rise since the introduction of the export incentive facility.

“Since its inception in 2016, the export incentive scheme has enhanced competitiveness of Zimbabwe’s exports and this has significantly contributed to the growth of exports, which grew by 36% from $2,8 billion in 2016 to $3,8 billion in 2017,” he said.

Bond notes were introduced in 2016 under the $200 million export incentive facility guaranteed by Afreximbank to grow the country’s exports.

The facility was exhausted and another $300 million facility was introduced. To date, $290 million in bond notes have been issued to exporters.

Since 2016, $290 million in bond notes have been issued.

Economist Moses Chundu said the success of the bond notes should be qualified and measured against the original policy objectives and the ultimate net effect of the same.

He said the trigger was the cash shortage in the economy as a result of alleged externalisation and the mechanics of their introduction was to inject the bond notes as incentives for exporters to generate more forex on the “erroneous assumption that the liquidity crisis was emanating from the current account”.

“First and foremost, the main symptom of the underlying problem — that is, cash and forex shortages — have not disappeared, in fact, they have worsened,” Chundu said.

“Granted that export receipts grew significantly implying that to the extent the problem was a forex generation one, we expected the positive impact of that to filter in the market, something we’re yet to see.”

His remarks come amid revelations that companies are getting the bulk of their foreign currency needs on the parallel market.

This has seen rates going up to as much as 50% despite insistence by monetary authorities that the surrogate currency is at par with the dollar.

The rates softened for a while when the new administration led by President Emmerson Mnangagwa came to power last year.

Chundu said to the extent externalisation was meant to be curbed, it would suggest externalisation was continuing or maybe it was never the real problem otherwise market liquidity should have improved by now.

He said it was not difficult to see how the bond incentive to exporters and gold producers brought about negative effects to their operations that far outweigh the intended benefits.

“The biggest negative to the rest of the economy is the manifestation of Gresham’s law that has seen the few millions of bond notes (bad money) driving away US dollars (good money) with the result that in addition to alleged externalisations, we now have a fresh cause of cash shortage in the name of cash hoarding,” Chundu said.

He said what had been unusual in the case of Zimbabwe was that the bond notes had disappeared after chasing away the dollar.

“So when the whole story is put together objectively and in context one cannot really say with a clear conscience that bond notes have been a success,” he said.

“In fact, the sooner we come to terms with that reality and adopt something workable, the better for the current efforts to revive the economy.”

Zimbabwe National Chamber of Commerce CEO Chris Mugaga said bond notes should be seen in the context in which they were introduced.

“They should have played a role in terms of export numbers,” he said, adding that cash shortages worsened under the regime of bond notes.

Analysts say local real-time gross settlement system funds were not being matched by foreign currency and the mismatch was triggering premiums on the parallel market.

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