Chinamasa's money dreams

VICE President Emmerson Mnangagwa says Finance minister Patrick Chinamasa has taken austerity measures to a whole new level, as the Treasury chief now “talks about money in his sleep.”

Mnangagwa this week told delegates at the Lesaffre Zimbabwe baking centre opening that the budget master literally took his work to bed.

“I want to tell you one thing about Chinamasa, even if you go and wake him up in his sleep, just to tell him you have brought him tea, he will shout, There’s no money! in his sleep…

“This is the dedication he has to his job, even in his sleep, he will be thinking about the state of the country’s revenues,” Mnangagwa said.

However, Chinamasa’s cash headache is not going away anytime soon, given Zimbabwe’s cash shortages are only escalating.

Battling acute dollar shortages, Zimbabwe reportedly needs close to $1 billion in cash for the country to return to liquid normalcy, amid indications government accessed a $500 million overdraft facility from the Reserve Bank of Zimbabwe (RBZ) to pay salaries last year alone.

“We need a cash to deposit ratio of around 15 percent to prevent liquidity problems in an economy, mind you, the current ratio is at four percent.

“Currently, we have $6,2 billion in deposits with real cash in the system at $304 million… So we need about $900 million as cash in circulation and nostros, to escape illiquidity,” renowned economics professor and advisor to the Office of the President, Ashok Chakravarti, recently said.

Bulawayo South legislator, Eddie Cross, last week expressed awe over Chinamasa’s ability to manage Zimbabwe’s economy calling the treasury chief “a magician.”

“In 2016, our budget deficit was $1,1 billion, 22 percent to the budget, which is completely unsustainable.  I think minister Chinamasa is a magic man because he funded those deficits from almost nowhere.

“I do not believe that is possible today.  I just want to warn the minister, that if there is any attempt to print money to cover the budget deficit, it will have serious consequences,” Cross said, warning the central bank against monetising fiscal deficit.

At the moment, Zimbabwe has $232 million United States Dollars in circulation, with a shortfall of almost $650-700 million and while the country introduced a parallel currency in the form of bond notes last year, Chakravarti says even with full issuance of the surrogate currency, the cash to deposits ratio remains pathetic.
“Even a full bond note issue of $200 million will therefore not make a difference. If ratio of bond notes to United States dollars is increased beyond current proportion, then it will no longer be a multi-currency situation and premiums will start emerging on United States dollars versus bond notes.

“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 United States dollars the economist said, adding bond notes could ease the liquidity situation a little bit, so long as there was an adequate supply of United States dollars.

When Zimbabwe adopted the multi-currency system, total deposits in the banking system were $1,66 billion, but the cash to deposit ratio plummeted from 35 percent in 2009 to five percent in January 2017.

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