Zimbabwe tax agency says local bank notes plan worsens liquidity

HARARE (Capital Markets in Africa) – Zimbabwe’s tax agency on Friday said the planned introduction of local bank notes had brought uncertainty and worsened cash shortages as consumers hold onto their dollars.

The Reserve Bank of Zimbabwe said last month “bond notes” would be introduced at the end of this month, raising fears of a return to a domestic currency abandoned in 2009 as hyperinflation soared out of control, leaving Zimbabweans using the U.S. dollar.

Central bank chief John Mangudya told a newspaper the notes would now be released in November after the government passes a law to back them.

Willia Bonyongwe, chairman of the tax agency ZIMRA, said in a statement accompanying third quarter revenue data:

“The imminent advent of the bond notes has brought some uncertainty into the economy, and this is exacerbating the existing liquidity challenges because everyone wants to keep their U.S. dollar cash.

“There is a serious confidence issue on this matter.”

Zimbabwe is in its worst financial crisis since it switched its currency for the U.S. dollar, and the new notes in small dollar denominations are intended to address cash shortages that have fuelled protests against the government.

On revenues, Bonyongwe said the tax agency had beaten its July-September gross tax revenue target of $917 million by 0.22 percent but it had only collected half of the targeted $29 million in mining royalties, due to weak commodity prices.

A forensic audit had revealed the “existence of endemic corruption in ZIMRA”, said Bonyongwe, adding that the tax agency had fired several executives for graft.

“Often it has been said the economy is resilient but I contend that it can no longer withstand the current levels of corruption,” he said.

Transparency International said on Oct. 4. Zimbabwe was losing at least $1 billion annually to corruption, with police and local government officials among the worst offenders.