President Robert Mugabe,Zimbabwe
Zimbabwe’s bond notes might have eased some of the country’s liquidity challenges, but the World Bank warned the country’s financial markets were too small to absorb the government’s $1billion (R13bn) overdraft with the Reserve Bank of Zimbabwe.

The World Bank said yesterday that “replacing this overdraft with treasury bills and a domestic bond would further constrain the supply of credit” to the private sector.

Further increases in the overdraft to finance the 2017 budget, which was expected to notch up another deficit, would increase the money supply and intensify inflationary pressures, the bank said.

“The bond notes have increased the cash supply, boosting liquidity and attenuating deflationary pressures. However, further issues of bond notes will need to be carefully monitored to contain inflationary pressures,” the World Bank said.

Zimbabwe is battling cash shortages, which the bond notes have failed to fix, with banks still witnessing long queues for cash and ATMs running out of banknotes.

This is expected to further stifle economic growth.

However, the World Bank expects Zimbabwe’s economy to grow by 2.8percent this year, with growth likely to be boosted by a recovery in agriculture.

It said the country’s gross domestic product (GDP) growth last year was sluggish.

Mining, another key sector, had performed well, but still faced challenges, especially with royalties still high amid a difficult operating environment.

Zimbabwe’s mining industry is home to units of Anglo Platinum, Sibanye Gold, Impala Platinum, Metallon Gold, among other resource groups.

“The cost of doing business in the sector remains high due to an outdated capital stock, a difficult business climate, and high royalty rates relative to other countries,” the report said.

It further highlighted that President Robert Mugabe’s government should remain committed to “the transparent, credible, and consistent application of its indigenisation policy” which would be crucial “to attract and retain investment” in the mining sector.

The country’s financial services sector, in which Barclays, Standard Chartered, Standard Bank and Nedbank have units, experienced a dramatic increase in government debt between 2015 and this year, which was negatively affecting the private sector.

The 2016 fiscal deficit that Zimbabwe notched up had “largely exhausted the government’s access to financing and limited the resources available” for the 2017 and subsequent budgets.

Foreign exchange rationing was expected to continue in Zimbabwe but the World Bank insisted that structural reforms, including improvements in the business climate, remained vital to Zimbabwe’s economic development.