Dollarisation Stumps Credit Line

Answering a Monitor Business question about the interest of Stanbic Bank Botswana in participating in the line of credit at a journalists’ workshop in Johannesburg recently, an official of the Standard Bank Group said banks were interested but liquidity in dollars was a problem.

"Risk share is welcome but liquidity is a big problem because we need the dollar to lend to businesses," said Standard Bank’s Head of Agricultural Banking, Jacques Taylor.

Movers of full dollarisation say Zimbabwe has to have a stable banking sector before it could embark on such an irreversible exercise.

In a dollarised economy, the central bank no longer has the power to print money and inject liquidity into the system when things go wrong in the delicate financial sector.

Critics of dollarisation say it is a tough hurdle to respond to economic shocks such as volatile prices of oil on international markets by "tweaking" on the exchange rate.

However, dollarization has a positive factor because it arrests high inflation driven by foreign currency shortages and the printing of money.

Botswana decided to extend the P500 million to Zimbabwe under the Short-Term Emergency Recovery Programme (STERP) that SADC member states agreed on as a means of assisting Zimbabwe recover.

"We are not going to extend the loan directly as Government," the Minster of Finance and Development Planning, Baledzi Gaolathe, said recently. "We are going to encourage our banks to extend that line of credit."

He said the government would guarantee the loans which are meant help Zimbabwe revive its economy.

"Banks will want some sort of comfort from us looking at what is happening in the international community (credit crunch)," Gaolathe said, " so the line of credit is not from our resources as such."

The resource requirements for helping Zimbabwe are said to be in the region of US$8.4 billion in the short-term. The immediate requirement is US$2 billion, with US$1 billion going into direct budgetary support.