Piggy has taken some time to analyse the 2019 Mid Term Monetary Policy Statement (MPS) that was recently issued by the Reserve Bank of Zimbabwe (RBZ). Three main highlights were (i) that the RBZ will be issuing new notes and coins given an increase in the demand for physical cash; (ii) that the RBZ rate for overnight borrowing has been revised upwards from 50% to 70% and (iii) that the RBZ will be introducing USD-denominated Savings Bonds.
In this article, Piggy will focus on the USD-denominated Savings Bond. According to the Central Bank, the Bonds are set to promote a savings culture and provide reasonable return on FCA Nostro account deposits and USD cash held by individuals and firms. The Bond will have the following features;
- Interest rate of 7.5% per year;
- Minimum tenure of one year;
- Tax Exemption;
- Liquid Asset Status;
- Tradable; and
- Acceptable as collateral for overnight accommodation by the RBZ.
Piggy is concerned that households and individuals might fall into yet “another money trap”. In fact, he thinks this Bond is as good as a scam because of the following reasons;
- The RBZ has issued Treasury Bills in the past, collected hard forex from investors and has failed to repay in US dollars. Similar story with foreign portfolio investors on the Zimbabwe Stock Exchange (ZSE). Statutory Instrument 142 has also proved to the biggest scam that has left investors stranded. The RBZ is cash-strapped and the only device they have at the moment is a Zim-dollar printing machine;
- The next question would be; Where is the RBZ putting your hard-earned USDs and earning 7.5% p.a for you? Eskom Debt? Fuel LCs? Command Agriculture inputs? AfDB, Afreximbank or IMF debt? Food for thought;
- The RBZ has not come up with any solution on the USD1.2 billion legacy debt or any framework on how it is going to deal with the issue. It has “assumed” the debt on paper but there has been no movement;
- The RBZ is desperate for forex! Credit lines have dried up, donor support is limited, export proceeds have declined and the external debt overhang remains;
- If the RBZ or Government of Zimbabwe was a credible borrower, then it would have gone and issued a Euro-Bond on international markets. If the rest of the world cannot give money to the RBZ or Government of Zimbabwe, why should you?
- The Bond does not in any way promote a savings culture amongst individuals. If the RBZ was really serious about savings, it would come up with an instrument for preserving local currency earnings. In South Africa, National Treasury introduced Rand-denominated Tax-Free Saving Accounts in 2015 and it has been a major success. What has the RBZ done to preserve pensioners’ funds?
- One year is too long in Zimbabwe these days given the instability and inconsistencies in applying new measures. A case in point are the exemptions on SI 142 that continue to be extended to certain sectors and parastatals. Clearly, the only stable thing has been the instability!
Households and individuals should steer clear and look for other credible and better avenues to save your hard-earned foreign currency. Consider trading FX online or even investing in alternative assets such as bitcoin or even real estate. Here are some of the common money traps that should also be avoided;
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