Kudzanai Gerede Business Correspondent —
Analysts have warned of the continuous decline in private sector deposits into the banking sector as an economic time-bomb given public sector deposits are increasing as this is likelyto worsen liquidity challenges and add fiscal problems for government.
This is however in spite of a 16 per cent increase in total banking sector credit in 2016 to US$ 6.2 billion.
Total deposits by the private sector fell by 7 percent to US$ 3.6 billion while deposits from the public sector leapfrogged by 116 percent from US$ 1.2 billion in 2015 to US$ 2.6 billion last year much to the chagrin of experts who have attributed the trend to an excessive public wage bill.
This came out in a presentation by economic expert and advisor to the Office of the President Professor Ashok Shakravarti at a CZI round table discussion held in Harare this past week where he said it was not economically sound for Government expenditure to increase when private sector revenue was plummeting.
The private sector is the source of Government revenue hence analysts foresee persistence of fiscal imbalances if the current trend is not reversed.
“Do not be fooled to think these deposits are actual people deposits into their accounts, it is just a reflection of Government salaries being deposited.
“The decline in private sector deposits is largely as a result of distress within the productive sectors, this means production levels have declined and more focus should be put on how we can ensure that private sector is back on its foot,” said Prof Chakravarti.
He further said the increase in public sector deposits is unfortunately backed by an increase in public sector debts to sustain the huge wage bill.
Government domestic debts have been surging, largely driven by continuous issuance of Treasury bills and other debt instruments.
In 2014 domestic debt stood at US$ 1.7 billion, while it grew to US$ 2.25 billion in 2015 before ascending to US$ 3.7 billion last year.
“We need to trim Government wage bill, stop issuing of Treasury Bills, overdrafts from RBZ or further borrowing from private sector all this to finance excessive Government expenditure, which is non-productive,” he said.
The private sector is facing a host of challenges chief among them capital constraints which has left many firms struggling to remain viable.
Economic analysts say the decline in private sector deposits to the banking sector are a reflection of the challenges currently bedevilling business in the country which has led to staff rationalisation and shutting down of many companies.
“A 7 percent decline in banking sector credit to private sector indicates that most companies have closed shop hence a decrease in deposits from this sector. This is also a case of people not depositing cash due to fear of bank withdrawal caps that were being put in place at banks so some people would rather give salaries in cash at hand,” said an economist Mr Pepukai Chivoore.
This comes at a time some sections in the private sector have called for negotiations with RBZ for a similar arrangement as the one reached by the Central bank and the Civil Service Commission for public sector workers to receive a US$ 300 withdrawal limit.
The latest deposits figures have suggested the reason why there is a widening mismatch between hard cash circulating in the economy and Real-Time-Gross-Settlements (RTGS) transactions. This is largely because private sector is under-performing hence generation of foreign currency is currently at its lowest since exports figure remain low.
Currently, Zimbabwe’s cash to deposit ratio stands at 4 per cent, a proportion experts say is insufficient to sustain the economy. Total hard cash in circulation is at US$ 304 million as at mid- January 2017 against total bank deposits of US$ 6.2 billion.
“A cash to deposit ratio of 15 percent is necessary to prevent liquidity problems in our economy.
“Currently we have US$ 6.2 billion in deposits so we need about 900 million in cash in circulation and nostros.
“As the cash shortage deepens, this premium will rise and can be viewed as representing the depreciation rate of the new currency in the form of Real Time Gross Settlement balances. The value of all deposits will decline in terms of real US$,” said Chakravarti while emphasising on more energy to be vested in financing private sector to be more productive particularly the manufacturing sector which offers diversity for exports.
Zimbabwe has seen exports struggle to surpass US$ 3.5 billion compounded by excessive importation of products which has led to liquidity and cash problems. Improvements in export figures are likely to offset the foreign currency impasse that is stifling liquidity.
Chakravarti is of the view that manufacturing by its nature of being vastly diversified should solely benefit from export incentives rather than mineral producers who already are exploring export markets regardless of incentives.
“Manufacturing can earn the country massive export figures if properly funded. I do not like it when producers of chrome or gold are getting incentivised because they already are exporting but it would be rather prudent to direct more resources to struggling manufacturing firms in order to export. This is the only way we can improve our cash to deposit ratio,” he said.