Liquidity crisis to persist

By Daniel Chigundu

THE liquidity crisis bedeviling the economy is likely to continue, unless government finds ways to attract long term deposits, seasoned market watchers have said.

Unavailability of long term deposits has been used by financial institutions as a panacea for not extending long-term loans to the productive sector at a time when most companies are in need of funds to recapitalise after a decade of misfortune.

Reserve Bank of Zimbabwe (RBZ) indicated that in September, demand deposits accounted for 58 percent, under 30-day 21 percent, long term 14 percent, while savings stood at 12 percent.

In their weekly market watch report for the week ending November 8 2013, Tetrad Securities said lack of long term deposits will affect the country’s economic growth.

“We are still of the view that policy makers need to find a way of attracting long term deposits as a way of reviving the sector and economy at large.

“The monthly trends by the RBZ on the monetary developments do not paint a sunny picture as the same old challenges continue to haunt a key sector within the economy. We are mainly concerned with the decline in the annual growth in total deposits.

“Such a trend implies that liquidity conditions will remain tight in the economy further curtailing economic growth prospects. Further to this, the transitory nature of deposits continues to create a mismatch as the industry requires long term capital compared to the available short term expensive capital.

“This explains the decline in capacity utilisation from 44 percent to 40 percent in 2013,” Tetrad said.

Meanwhile, the central bank published its monthly economic review paper for September 2013, where it said annual broad money supply growth declined from 5.77 percent in August 2013 to 4.89 percent in September 2013.

Tetrad said this decline mirrors the slowdown in the economy which has seen other sectors contracting leading to the gross domestic product (GDP) downward revision from 5 percent to 3.4 percent by the Ministry of Finance.

However, money supply increased by 3.01 percent on a monthly basis to US$3.91 billion in September compared to August’s US$3.79billion.

And this increase in money supply was attributed to inflows of US$87.83million at commercial banks according to the RBZ. However, deposits remained transitory in nature with demand deposits and under 30- day deposits accounting for a combined 74 percent.

Annual growth in credit to the private sector was down by 1.88 percent from 12.84 percent in August to 10.96 percent in September according to the central bank.

Tetrad said it also noted that the decline in private sector credit on an annual basis relates to the above mentioned factor of depressed demand in the economy.

Credit to the private sector on a monthly basis rose by a marginal 0.64 percent from US$3.69 billion in August to US$3.71billion in September. Outstanding loans and advances were mainly in respect of manufacturing (16.71percent), agriculture (18.38 percent) and distribution activities (16.72 percent).

The RBZ monthly economic review also highlighted that households accounted for 17.77 percent of total loans and advances to the private sector. As a result, the 3.01 percent growth in deposits compared to the 0.64 percent growth in credit saw the loan to deposit ratio for the sector improving to 95.07 percent from August’s 97.32 percent.