FINANCE and Economic Development Minister Patrick Chinamasa says the recently introduced bond notes will spur private consumption and in the process boost the country’s weak aggregate demand. Presenting the 2016 National Budget Statement to Parliament in Harare yesterday Minister Chinamasa said with the slowdown in economic activity in the country, aggregate demand remained suppressed.
“Final consumption succumbed to low disposable incomes with private non-capital spending, declining by 4 percent. As a result, overall consumption is expected to decline by 2 percent in 2016 against a drop of 1 percent in 2015,” Minister Chinamasa said in his budget.
“The broadening of the range of multi-currencies through the addition of the $1 bond coin and the $2 and (soon to be introduced) $5 bond notes as an incentive to increased production for exports should spur private spending on the back of cash and liquidity improvements, that way boosting aggregate demand,” the Finance Minister said.
Reserve Bank of Zimbabwe Governor Dr John Mangudya introduced the surrogate currency, announced early this year, on Monday last week. The bond notes are a financial instrument introduced by the RBZ, as a 5 percent export incentive to encourage generation of exports.
The RBZ is in the process of drip feeding the bond notes into circulation, to avoid negative out-turn such as abuse or high inflation, with an amount of $75 million due to exporters to be released into circulation by year end.
However, a total of $200 million will be released into circulation over a period stretching to end of next year. The bond notes, which rank 1:1 in terms of value with the US dollar, are backed by a $200 million facility provided by regional banking group, African Export and Import Bank.
The minister, however, said Government consumption increased by 5 percent in 2016, as reflected through the high recurrent expenditures. National budget expenditure performance during 2016 has, however, been inconsistent with the revenue collection shortfalls being experienced.
Cumulative expenditures for January-October 2016 amounted to $3,84 billion, against a target of $3,32 billion, giving a variance of $520 million. Notably, Minister Chinamasa said Government exceeded its planned expenditure for this year due to the need to import grain to mitigate effects of drought, pay 2015 December salary arrears and sovereign debt arrears.
But it is introduction of bond notes, which is expected to improve liquidity in the economy and give consumers leverage to spend and firms to do business, which should spur the economy.
- The Herald