HARARE – The Reserve Bank of Zimbabwe (RBZ) should increase the level of the current export incentive to 20 percent for selected sectors, a business representative body has said.
The Zimbabwe National Chamber of Commerce (ZNCC) has called for a plethora of strategic moves by Reserve Bank of Zimbabwe governor Dr John Mangudya when he announces 2017’s first Monetary Policy Statement soon.
Monetary policy is basically the process by which the monetary authority of a country, the RBZ in this case, controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency.
In the last few years, it has often been stated the RBZ’s hands are rather tied in determining these processes due to use of foreign multiple currencies, but with the introduction of the bond notes the circumstance might be a little different this time around.
The ZNCC says Dr Mangudya’s upcoming Monetary Policy Statement should be “stimulatory”.
“The Governor will for sure continue on the ‘Walk the Talk’ trajectory and a mix of provident tools to address the current liquidity situation will help achieve near term objectives. Such a mix would control financial risks, and ensure sufficient credit to sectors that enhance domestic productive capacity.
“We expect further improvement in the efficiency of the banking system, where it will allow credit growth towards productive sectors with little increase in risk provided prudential tools are employed to curb excessive credit to specific sectors.
“The current export incentive of 15 percent should be increased to 20 percent for selected sectors such as leather, cotton-to-clothing and other sectors which are into value addition, in order to grow exports,” said the business representative body.
The bond notes export incentive scheme was introduced in October last year, and earlier this month the RBZ released $15 million injection in $5 bond notes, to push the total of bonds floating in the local market to $88 million.
The bond notes are backed by a $200 million Afreximbank export promotion facility, and a maximum of $200 million worth of bond notes is expected to eventually end up in circulation.
Despite one of the key aims of the bond notes is to improve liquidity on the local market, cash shortages are still a common feature.
The ZNCC says the RBZ should encourage more bank savings.
“The Reserve Bank must explicitly address current pressures on the monetary system, that is the liquidity constraints and demand deposits (mostly in form salaries), which increased by 34 percent in 2016 compared to 2015,” it said.
“With a lower cash to deposit ratio (total hard cash over deposits) of 5 percent this simply means that there are fewer dollars of the monetary base that the public holds as currency hence the lower the money multiplier.
“This needs to be addressed and a cash to deposit ratio of more than 12 percent is necessary to ease the prevailing liquidity constraints.”