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LIQUIDITY CHALLENGES AND WAY FORWARD

LIQUIDITY CHALLENGES AND WAY FORWARD. j. Mverecha. OVERVIEW. Introduction Economic Recovery Current Liquidity Challenges FDI and the Economy Impact of FDI on the economy Way Forward. Introduction. Economy Prior to STERP Multilayered policy induced distortions Hyperinflation

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LIQUIDITY CHALLENGES AND WAY FORWARD

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  1. LIQUIDITY CHALLENGES AND WAY FORWARD j. Mverecha

  2. OVERVIEW • Introduction • Economic Recovery • Current Liquidity Challenges • FDI and the Economy • Impact of FDI on the economy • Way Forward

  3. Introduction • Economy Prior to STERP • Multilayered policy induced distortions • Hyperinflation • Hyper Asset Price Bubbles • Economic meltdown……2008 • Inclusive Government & STERP Measures • Liberalization of the economy • Multicurrency • Slow Capacity recovery • End of hyperinflation • Deflation • Steady but uneven recovery…….

  4. Introduction • Economy steadily recovering….. • Price stability • Capacity utilization • Revenue growth • Deposits growth…….. • But Major Issues………. • Liquidity challenges • Slow capacity recovery • Low output/wage equilibrium • Low savings and investment • Unemployment & Poverty

  5. Introduction Inflation fundamentals improving............. 5

  6. Introduction Inflation fundamentals…….Uncertainty

  7. Economic Recovery……

  8. Economic Recovery…………

  9. Economic Recovery……….. • Assumptions: Optimistic Scenario • Accelerated mining sector and agriculture growth • Indigenization and empowerment framework on the basis of stakeholder consensus • Progress on Debt and Arrears Clearance strategy • Sustained GPA Progress : Political and Macroeconomic stability • New investment in infrastructure: energy, power and ICT • Structural reforms including privatization • Investment in Education, Health; New ICT; R&D

  10. Banking Sector Deposits • Growth in deposits from US$1,4 bn in Dec-09 to US$2,6 bn by April 2011

  11. Liquidity Challenges……Deposits Growth……

  12. Money Supply Forecasts….

  13. Liquidity Challenges….. • Economy faces liquidity Challenges • Slow deposit Growth @Us$2.6 billion (April) • Mainly short term deposits (90%) • Financial intermediation growing slowly • Two Sources of Liquidity (Multicurrency) • Exports • Credit Lines • Economy Requires significant capital flows • Capitalization of firms • Working capital financing • New Equipment financing • New Projects (e.g Energy/infrastructure)

  14. National Imperatives • National Imperatives: • Economic Growth • Job creation and poverty alleviation • Investment in Education, Health, Research & Development • New (wealth) value creation • Broad based economic transformation • Equity, Fairness & Opportunity For All • SMEs growth & transformation • Youth & Gender mainstreaming…… • Financial intermediation is at the heart of economic growth…… • Economies grow due to investment/FDI... • China, India, Peru, South Korea, Taiwan……

  15. National Imperatives • To Achieve National Imperatives: • Promote export growth • Secure Credit Lines • Engagement of International Community • External Debt & Arrears Resolution • Address Banking sector Vulnerabilities • Capacitating Central Bank • Lender of Last Resort Function • Domestic stakeholder engagement • An All stakeholder approach • Govt, Business & Labour (Policy Consensus) • Deal with Uncertainty • Political & Policy Issues

  16. Why Investment is Critical • Economic Growth & Poverty Reduction • Economic Growth & Improving living standards • Economic growth & national development • Economic development & long term stability • Economic Growth & Social cohesion • Greece, Tunisia, Egypt, Jordan, Yemen…..

  17. Ghana and Malaysia • Both Were British Colonies • Both got independence same year • Both had similar per capita levels in 1957 • In 2010, Malaysia’s per capita is 10 times higher • What accounts for the difference?

  18. Ghana and Malaysia: 1957

  19. Ghana and Malaysia: 2009

  20. Ghana and Malaysia

  21. Per Capita Comparative Analysis: 1960

  22. Per Capita Comparative Analysis: 2009

  23. Seven Lessons From China • Specific Well Defined Economic objectives • Learning from own Mistakes • Understanding the Global dynamics • Far sightedness/ Focus on Long term • Mastery of International Engagement • Investment in Education, Health, R& D • Nationalism balanced with Global Imperatives

  24. Gold Prices…..A window of opportunity

  25. WAY FORWARD • Improving the Investment Environment • Improving the overall investment environment is critical for FDI. • Zimbabwe is presently viewed as a high risk investment destination. • Agreed Framework for IEE • Stakeholder Consensus

  26. THANK YOU

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