…As govt claims move is meant to restore economic stability
Emmanuel Chitsika
The decision by government to heavily descend on the financial sector where lending activities by banks, micro finances and other players in the sector have been banned has been described by experts as detrimental to the banking industry whose lifeline is on revenue accrued from loans and such related business.
Experts believe the move seeks to destroy the banking sector while they argue on the decree lacking a legal standing.
Economist Caleb Gwaindepi is sceptical of the move which he says is likely to negatively affect the economy in particular banking sector but government should have just regulated banks that lend money than suspending lending.
“Government should regulate and ensure that banks lend funds for productive activities, the Reserve Bank can monitor that since they have a monitoring division. Money creation for productive activities is not inflationary. Outright banning shows the Reserve Bank cannot do its job of regulating banks.
“Banning lending destroys the financial sector which is a critical provider of funds for productive activities in the economy. Their role is financial intermediation which is accepting deposits and passing them as loans,” said Gwaindepi.
He said such kind of a ‘command economy’ is detrimental to efforts of rebuilding the economy.
“It is a command economy and will not work; actually it will destroy efforts to rebuild the economy, without funding intermediation no productive activities take place. Furthermore it affects the good standing of banks and takes away credibility of monetary authorities,” he added.
Another commentator Nelson Munhuwamambo said the move is going to negatively impact on the already struggling economy.
“The move will see a reduction in the amount of currency in circulation which would lead to higher demand. Though what they are doing is meant towards trying to contain price hikes, that is likely to lead to cash shortages and the cost of borrowing will go up as money is likely to end up being disbursed through informal means from the central government which already has quite number of leakages.
“The inflation they are trying to contain will go unabated. Loss of investor confidence is also likely to be another effect from this overnight introduction of monetary measures and current investors may move out of the country to other lucrative ventures where investor confidence is guaranteed. The 2005/08 situation is likely to haunt the country. Also firms into manufacturing are likely to be affected which could add to already existing higher rates of unemployment,” said Munhuwamambo.
He also said the announcement lacks legal base as it is not in form of statutory instrument and might be deemed illegal.
“Also there is no legal basis in form of legislation to support such a move. No prior arrangements to cushion the economy from likely effects are in place whatsoever. That will lead to revert to limitations in quantity of commodities a particular individual would be allowed to purchase at a given time,” he added.
United Kingdom based lawyer Alex Magaisa was quoted in some sections of the media saying the announcement has no legal basis to take effect and hence financial institutions are not compelled to implement such resolutions.
“This is a shameful document by Zimbabwe’s central bank. Since it knows the decree has no legal foundation and there is no law compelling banks to comply with such a measure. There is no legal instrument under Zimbabwean laws called a ‘Presidential Announcement’,” wrote Magaisa.
As a result of the ballooning inflation, most businesses were forced to peg prices of basic goods in foreign currency abandoning the local currency whose value continues to crumble against the green back.
Following a wave of hikes in prices of basic commodities coupled with sky-rocketing inflation that has seen the local currency value dwindle in terms of value against the US$, a panicking Zimbabwean government has through the Reserve Bank of Zimbabwe (RBZ) descended heavily on the already struggling banking sector and suspended issuing of loans by players in the financial sector.
In a communiqué undersigned by the Director Bank Supervision P T Madamombe dated May 9, 2022 addressed to all banking institutions, development finance, deposit taking and credit microfinance institutions, the Central Bank in support of the announcement by President Emmerson Mnangagwa on May 7 claimed the move would restore macro-economic stability in the country.
“We refer to the National Announcement of May 7, 2022 made by the President of the Republic of Zimbabwe, His Excellency Dr E. D. Mnangagwa, on Measures to restore confidence, preserve value and restore macroeconomic stability, and the subsequent meeting of representatives of the banking sector with the Governor held on May 9, 2022. We bring to your attention paragraph 40 of the President’s announcement on the suspension of lending by banking institutions, building societies, development finance institutions. Deposit taking and credit-only micro-finance institutions to the government and private sector.
“For the avoidance of doubt, this suspension relates to all lending, whether local currency or foreign currency, to government and the private sector, including corporates, other legal entities and individuals. We further confirm that no new credit facilities should be issued as the suspension covers new loans, undrawn portions of agreed facilities, overdrafts and other forms of borrowing instruments, by whatsoever name they are called,” read part of the letter.
