THE LIQUIDITY crisis currently choking the productive sector of the Zimbabwean economy does not necessarily need to continue for an elongated period of time. In order to solve and alleviate the liquidity crunch, concerted action by various stakeholders is needed.
There are basically three key stakeholders that need to play an active role to ameliorate the negative repercussions of the liquidity squeeze.
The monetary sector The lion’s share in terms of proffering solutions that can take the monetary sector forward lies in the province of monetary authorities.
It is a well known fact that when the economy adopted a basket of foreign currencies as legal tender in February 2009, the central bank lost monetary sovereignty and much of its ability to influence macroeconomic fundamentals such investment, savings, employment and the current account.
The fact that currently Zimbabwe does not have a currency of its own places certain limitations on monetary policy formulation and implementation.
The central bank needs to craft policies that incentivise the liquid informal sector to at least yield a significant proportion of its purchasing power to the formal payment channels in the economy. To achieve this, the Reserve Bank of Zimbabwe needs to lobby the legislature to modify the Banking Act with a view to accelerating electronic and especially mobile banking.
Telecommunication companies need to be permitted to establish strategic partnerships with banks with a view to unlocking revenue streams through financial service innovations that blend technology more with traditional bank services or products.
Given the fact that firms such as Telecel and Econet have strategic partnerships with giant telecommunication firms and financial institutions abroad, opening up of banking sector activities to them would improve the mobility and fungibility of money streams that circulate outside formal channels.
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One of the key disincentives to keeping deposits with banks is exorbitant bank charges. It does not make economic sense to a surplus unit (potential depositor) in the economy to provide the bank with liquidity or cash which is an asset and to be penalised through high bank charges as a result.
The problem that exists in the banking sector in Zimbabwe is that most commercial banks are uncreative and as a result they want to survive off the tired and economically battered populace. Financial institutions such as CABS, FBC, BancABC, Standard Chartered Bank, CBZ and NMB have explored several avenues of improving their revenue streams without burdening their clients and this has encouraged customers of other banks to flock to these financial institutions.
Banks which are not financially sound need to merge with stronger banks so that duplication of effort and unnecessary competition occasioned by overbanking an economy which was shrinking between 2003 and 2008 will be eliminated. Larger and better capitalised banks are able to achieve economies of scale which leads to a dramatic fall in operating costs hence spinning off many dynamic benefits to bank shareholders and their customers.
The government Central government needs to remain seized with the implementation of the economic blueprint (ZimAsset) which is meant to resuscitate the economy.
Wholehearted and holistic implementation of the economic recovery framework is a necessary condition in ensuring sustainable economic growth and thus encourage the private sector of the economy to participate more meaningfully in the activities of financial intermediaries.
This entails educating the economic citizenry as a whole on the economic recovery framework especially its strengths and weaknesses. This will enable well meaning contributors to suggest improvements on the set of policies as they are being implemented and thus ensure that set milestones are achieved timeously.
International community The international community especially foreign investors, Sadc member states and institutions such as the African Development Bank need to play a crucial role in assisting domestic monetary authorities overcome liquidity problems.
South Africa as Zimbabwe’s major trading partner needs to play a more active role in boosting liquidity in Zimbabwe since domestic consumers spend a large proportion of their income purchasing South African commodities.
The persistence of the liquidity squeeze followed by a decline in incomes because of company closures is likely to negatively affect South African exports to Zimbabwe.
This therefore implies that it is in the best interest of Zimbabwe’s major trading partners to ensure that the economy continues on the path to recovery and does not implode at a later stage because of liquidity challenges.
Ian Ndlovu is an economics lecturer at the National University of Science and Technology. He researches on e-commerce, business and development issues. He writes in his personal capacity.
