A LOCAL research firm says it expects Zimbabwe’s money supply to remain “under a leash” after recent changes made to Zimbabwe’s exchange controls.
As part of measures effected a fortnight ago to promote the use of the local currency, the Treasury will now fund the Zimbabwe dollar component of the 25 percent foreign currency surrendered by exporters, to eliminate the creation of additional money supply.
Minister of Finance, Mthuli Ncube, said the foreign currency collected from the 25 percent that is surrendered will now be collected by the treasury and utilised in servicing the foreign currency loans assumed from the Reserve Bank of Zimbabwe.
“Banks will no longer withhold any foreign currency surrendered by exporters, and all the liabilities to the banks will be settled through the treasury,” he said.
Mthuli Ncube, Finance Minister
Money supply has been on the rise and with very little economic growth to support it, while the domestic unit has persistently lost value.
“With Treasury now handling external loans, money supply is expected to remain under a leash as the 25 percent US dollar retentions will be settled using tax revenue,” IH Securities said in a recent note.
According to the central bank’s monthly economic review, the country’s broad money increased by 9,12 percent to $3,19 trillion in March 2023, compared to $2,92 trillion recorded in February 2023.
This comes amid renewed calls for the central bank to stop all “quasi-fiscal” activities.
RBZ said the increase reflects an expansion of $114,56 billion and $152,19 billion in foreign currency deposits and local currency components respectively.
“The money stock was composed of foreign currency deposits, 58,49 percent; local currency deposits, 41,31 percent; and currency in circulation, 0,20 percent,” RBZ said.
On an annual basis, broad money registered an increase of 442,41 percent, compared to 478,56 percent in February 2023.
Broad money saw a growth in its local currency component of 322,47 percent and a rise in its foreign currency component of 579,25 percent.
“The growth in foreign currency deposits from $275,17 billion in March 2022 to $1,86 trillion in March 2023, was largely attributable to valuation changes related to official exchange rate depreciation. Over the year to March 2023, the official exchange rate depreciated from $142,42 per US$1 to $929,86 per US$1.
“The annual increase in broad money was reflected in annual changes in net claims on government and credit to the private sector of $547,90 billion and $1,42 trillion, respectively,” the central bank said.
Experts say rising money supply and high demand for the US dollar, as well as a confidence deficit in Zimbabwe, have piled pressure on the domestic unit, resulting in the current spikes in both official black market exchange rates.
Equities data analyst, Vanessa Machingauta recently told The Financial Gazette that recent movements in the exchange rate were driven by money supply growth.
“A spike in the parallel market rate normally coincides with ZWL payments by the government, so we then have all this ZWL liquidity chasing the dollars on the market, causing a depreciation in the rate.
“This could signal a turnback into an inflationary environment considering the steep rate at which the ZWL is depreciating,” she said.
“A weaker ZWL also means eroded purchasing power for consumers and decreased volumes for corporates. Suggestions would either be to limit bulk ZWL payments by the government unless necessary or pair these payments with liquidity mopping exercises.”