Zimbabwean bond notes policy staves off fiscal reforms

Significance

GDP is still set to recover this year, accelerating to 3.7% (from 0.7% in 2016) according to government forecasts. This is driven by robust exports, which should boost legitimate dollar supply. The additional notes will apparently be underwritten once again by the African Export-Import Bank (Afrexim) -- although the lender is yet to provide confirmation.

Impacts

• Better-than-budgeted revenue collection in 2017 will ease fiscal strains, but the government deficit will remain elevated at 6.3% of GDP.
• With gross reserves covering only two weeks of imports, the RBZ will likely lean more on exempt exporters for their dollar earnings.
• High capital adequacy masks risks to the banking sector from the heavily discounted treasury bills and electronic deposits.