RBZ eases foreign payments bottleneck

Source: RBZ eases foreign payments bottleneck | The Herald April 12, 2017

Happiness Zengeni and Conrad Mwanawashe
The Reserve Bank of Zimbabwe has moved to ease foreign payments bottlenecks after it drew-down $100 million on the $150 million African Export-Import Bank loan facility yesterday.

The central bank said apart from the Afreximbank facility, the release of the funds was made possible by export earnings from the sale of green-leaf tobacco at the tobacco floors by tobacco growers.

As at April 10, about 39 million kilogrammes of tobacco valued at about $102 million had been sold on auction and contract floors, which was day 19 of the 2017 tobacco selling season.

About $700 million has been mobilised by merchants for the purchase of tobacco this season, where the golden leaf’s output is expected to marginally surpass last year’s sales.

RBZ governor Dr John Mangudya said yesterday that the funds released into the banking sector would cater for outstanding foreign payments for productive uses, including payments of tuition fees by Zimbabweans studying abroad.

Another $70 million facility from the same bank will be drawn-down from next week.

“We remain greatly indebted to Afreximbank and earners of foreign exchange in Zimbabwe,” said Dr Mangudya.

Foreign currency shortages have been Zimbabwe’s bane since the country adopted a multiple currency basket system in 2009. Low foreign currency inflows and high imports, coupled with externalisation of the green-back at a time when exports have declined significantly, resulted in the country depleting its nostro accounts, causing a gridlock on foreign currency payments.

To stem the challenges, the central bank introduced a priority list for foreign payments with a strong bias towards productive and critical areas such as fuel and health. Mangudya said the draw down of the funds released to the market comes at an appropriate time at the commencement of the tobacco selling season, which makes it faster to address the foreign payments backlog.

The central bank chief noted that the pricing was quite reasonable, an all-inclusive interest rate of just below 5 percent per annum. Dr Mangudya said the $100 million released into the banking system will be utilised by customers with funded accounts only and that the central bank will monitor distribution of funds from the facility.

“The funds released by the bank shall be utilised by banks’ customers through normal banking channels and shall be made available to funded accounts only, that is, banks are not supposed to fund their customers’ accounts from loans and overdraft facilities to access funds released by the (central) bank.

“This principle is necessary to deal with effective demand for foreign exchange and thus eliminating latent demand while simultaneously encouraging businesses to bank their sales proceeds. Non-compliance by banks to this principle shall be a punishable offence,” said Dr Mangudya adding that all tuition fees backlog had been cleared following the release yesterday.

He said that the bank is putting in place foreign exchange facilities to smoothen the troughs during the low-exporting periods after the closure of the tobacco and cotton selling seasons. “We need to be better planners of our destiny.”