MPS provides tone for economic stability 

Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya yesterday presented his Monetary Policy Statement which largely focused on measures aimed at instilling confidence in the economy.

Some of these include strengthening the multi-currency system, enhancing exports and fostering price stability. One of the major highlights of the monetary policy was the directive by the central bank to create new Foreign Currency Accounts by local banks to enable individuals and corporates to deposit and withdraw their hard currency freely.

The Nostro FCAs pertain to free funds, Diaspora remittances, international organisations’ remittances, portfolio investment inflows, loan proceeds and export earnings.

According to the RBZ all exports, except gold, tobacco, platinum and chrome producers, will be allowed to open FCAs and retain 100 percent of their earnings.

With immediate effect, all banks have been directed to effectively operationalise the ring-fencing policy on Nostro foreign currency accounts by separating FCAs into two categories, namely Nostro FCAs and RTGS FCAs and we feel the bank should have real fangs for orders to be followed.

The know-your-client (KYC) principle is already in place for compliance with this directive to separate the accounts without requiring their clients to complete any other documentation other than for new bank accounts.

We expect a boom in exports, Diaspora remittances, deposits of foreign currency into the Nostro FCAs and the elimination of the dilution effect of RTGS balances on Nostro foreign currency accounts.

Maintaining the relationship between the two categories of the FCAs at parity levels will preserve value for money for the banking public and investors during the transition to a more market-based foreign currency allocation system that shall be implemented once the economic fundamentals are appropriately in place.

Local banks were ordered in February this year to open FCAs for exporters, but were reluctant to implement this.To support this measure, the apex bank said it is finalising discussions with the African Export-Import Bank (Afreximbank) for a $500 million Nostro Stabilisation Guarantee Facility (NSGF) to provide Nostro FCA holders with assurance that foreign currency will be available when required by the account holders.

This will not only enhance foreign currency inflows into the economy, but will incentivise companies to produce more for exports while encouraging remittance through the formal channels. It was disturbing that some businesses and individuals were depositing foreign currency, but struggled to withdraw their money in hard currency or to have their imports of foreign services paid for.

At a time Zimbabwe is facing serious foreign currency shortages which has seen the foreign backlog increasing to $700 million, with companies struggling to pay for critical imports despite growing demand, it is expected the pronouncement by Dr Mangudya will go a long way in easing foreign currency shortages.

Dr Mangudya has already projected the economy will expand 6,3 percent this year, an upward review from the initial 4,5 percent.

It’s also commendable that the central bank is negotiating lines of credit for importations of critical raw inputs such as fuel, soya bean crude, drugs and wheat as this will ensure availability and price stability.

The economy is definitely showing signs of recovery, particularly in the manufacturing sector which has in turn resulted in increased high consumer demand for locally produced goods, improved business confidence internally and externally. Positive expectations also followed the July 30, 2018 harmonised elections.

To usher market confidence, a plethora of measures that dovetail with what President Mnangagwa said in his address to the UN 73rd session, the apex bank assured the business community that the multi-currency system would remain in place.

The decision to allow business to charge their services to foreigners in foreign currency will help harness more foreign exchange into the formal system unlike the obtaining situation where foreign truckers and some regional businesspeople, some using local fronts, exchanged the money first before buying local products such as fuel, using bond notes, swipe or EcoCash.

With these and other measures to come, it is our hope that sympathetic countries and organisations willing to engage Zimbabwe, will help the country clear its arrears of nearly $1,8 billion to the World Bank and the African Development Bank.

Locally, the measures, among other issues, will help restore confidence to the exporters, deal with budget deficit, encourage foreign currency inflows and increase inflows into national coffers.

Zimbabwe’s economy is poised for growth.