Liquidity Crunch Threatens Continued Dollarisation
BMI View: Near-deflation and bank queues indicate that a liquidity crunch, which has haunted the Zimbabwean economy for the last five years, is only getting worse. The authorities have two options to address this: attracting net external inflows or reverting to a domestic currency. We believe that the latter looks more likely following several developments that seem to reaffirm the government's commitment to its foreign investment-deterring indigenisation program. The 2014 budget speech scheduled for December 17 2013 will provide further clues as to the likely policy trajectory.
Annual inflation declined to 0.54% year-on-year in November 2013, down from 0.59% y-o-y in October as tight liquidity and a weak South African rand push the Zimbabwean economy closer to deflationary territory.
It is the former point - the issue of tight liquidity - which is playing havoc with economic growth and causing headaches for policy-makers. As the chart below illustrates, deposit growth has stagnated with the deposit base barely having increased over the course of the last 12 months. At the same time, banks are being buffeted by high and rising non-performing loans, which are eating into capital bases. Queues have formed at some banks as these institutions are limiting the amount each customer can withdraw. There were reports in local media on December 17 that frustrated customers damaged property and assaulted a manager at a central Harare branch of Allied Bank after the bank reportedly ran out of cash.
|Flirting With Deflation|
|Zimbabwe - Annual Headline Inflation, % y-o-y|