Domestic debt increases by 19.4%% in two weeks (10-08-07)

GOVERNMENT’S domestic debt has soared to $8 trillion, increasing by 19,4% in two weeks from $6,7 trillion largely due to huge interest payments and treasury bill instruments.
Figures obtained from the Reserve Bank this week showed that government debt surged to $8 trillion on July 6. Econom

ists say the debt will continue to increase on the government’s continued reliance on the local market for funds. Government’s revenue from taxes is not enough to cover its bloated expenditure. The debt had opened the year at $175 billion. Government also need funds to import maize, fuel, wheat and power which are all in short supply.
The new debt levels mean that with an estimated population of 13 million, every citizen currently owes $615 384,61 to the local financial sector. Most Zimbabweans live below the United Nations poverty benchmark of US$1 per day.
“Outstanding treasury bills accounted for 99,3% of this amount while interest payments accounted for 75,4% of total debt,” the bank said.
The increasing government debt raised fresh fears of a renewed turbulence in the crisis-sapped economy, battling high inflation currently topping 4 530%.
Independent economists however said the current inflation was above 10 000%.
High interest rates have helped swell the level of domestic borrowings forcing government to restructure its debt early this year.
As the debt continues to rise annual broad money growth (M3) rate for May rose to 7 134,9% an increase of 2 923,2 percentage points from 4 211,7% recorded in April.
This represents a rise in broad money of $10,7 trillion from $146 billion in May 2006 to $10,6 trillion in May this year.
“On a monthly basis, broad money increased by $5,8 trillion in May compared to $ 1,6 trillion in April. Growth in narrow money was largely due to an annual expansion of currency in circulation of 10 204,7%,” the central bank said.
Annual narrow growth increased to 8 443,8% from 4 819,2 April 2007. On a monthly basis, narrow money rose by 135,7% to $8 276,3 billion in May this year.
“Year on year growth in quasi money stood at 4 690,4% up from 3 120 the previous month. Monthly quasi money grew by 82,8%. The growth in money supply was largely due to an annual expansion of currency in circulation of 10 204,7%.
“Annual growth in domestic credit continues to be mainly driven by lending to the private sector which grew by 14 903,1% lending to government 4 119% and credit to public enterprises 947,9%,” said the bank.
 
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MONEY market interest rates have taken a huge knock from as high as 350% on the short-end last week to as low as 50% this week. Short-term deposit rates fell to below 80%, due to liquidity injected in the market caused by government’s increased expenditure.
Rates on 90-day paper fell to between 50% and 150% from over 350% earlier, as the appetite for cash in the market eased.
Call money continued unchanged at 4% or below while the interbank overnight rate dropped to 80% from between 180% and 300% previously.
Analysts said the market had very low volumes of Treasury Bills (TBs) maturities up to December and was expected to remain short in the short-tem, although government expenditure will occasionally reduce the deficit.
Analysts say with the tobacco selling season closing next month there will be no significant liquidity injection into the market in the short-term.
The Reserve Bank of Zimbabwe’s Monthly Economic Review for June shows that the rate at which banks have been subscribing into TB’s
versus their loan origination has been coming down since beginning of 2006.
The trend is progressive downwards, showing that inasmuch as banks are buying TBs everyday, their loan origination is much faster.
Due to the poor returns on TBs banks have switched to overdraft facilities whose rates are determined by the minimum lending rates.
Minimum lending rates of banks are averaging 450% per annum. Compounded monthly as they do, they give an annualised return of 4 530%, well ahead of the 340% on the TBs on offer at the Reserve Bank.
The central bank’s accommodation rates have remained unchanged at 600% and 700%.
 
 

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