The central bank says it is putting in place a $70 million nostro stabilisation facility to quicken the processing of outgoing payments by banks after the amount held in offshore accounts dropped by two thirds as the country deals with persistent cash shortages.
The southern African country’s banks have $250 million in offshore accounts and $120 million in physical cash while $600 million is estimated to be circulating in the economy, the RBZ said in a monetary policy statement on Wednesday.
Zimbabwe introduced a surrogate currency — called bond notes — in November last year to tackle a crippling shortage of currency but banks are unable to pay for imports because they do not have dollars.
The shortage of cash has seen the value of point of sale (POS) transactions growing by 68,6 percent in 2016 to $2,9 billion.
FDI, remittances fall
Diaspora remittances amounted to $779 million from $939 million in the prior year while international organisations remittances declined from $978,8 million in 2015 to $795 million this year.
Remittances from millions of non-resident Zimbabweans have become a significant contributor to the country’s economy as the country remains a foreign direct investment (FDI) leper.
FDI declined from $399.2 million in 2015, to $254.7 million in 2016, reflecting low foreign investor sentiment in the country owing to the poor operating environment, policy inconsistency and unfavorable investment policies.
The indigenisation law is chiefly blamed for scaring away investors while attempts to ‘clarify’ the law have led to more confusion. Analysts have urged the government to repeal the law altogether.
The RBZ said the drop in remittances were as a result of poor global economic performance, depreciation of South African Rand and the prevalence of informal channels of transfer despite a three percent incentive for using formal channels.
The apex bank has previously estimated that Zimbabwe gets as much as $2 billion in annual Diaspora remittances, with only a fraction of that going through formal channels.
South Africa hosts an estimated three million Zimbabwe diaspora community.
Banking sector safe, RBZ to lower interest rates
The RBZ said it will reduce banks lending interests rates from 15 percent to 12 percent per annum and also lower charges for use of plastic money.
“Measures to reduce the cost of doing business by reducing lending rates charged by banks from an upper limit of 15% to 12% per annum, and by reducing charges on the use of plastic money to as low as 10 cents for small purchases of $10 and below,” said the bank. Banks were stable, with core capital at $1,15 billion during the quarter ended 31 December 2016, it added.
As at December 31, 2016, all operating banking institutions were in compliance with the prescribed minimum capital requirements.
The RBZ’s special purpose vehicle, set up to clean up the sector’s bad debts, the Zimbabwe Asset Management Company (Zamco) has so far acquired a total of $812.52 million non-performing loans (NPLs) comprising of $548.66 million proprietary portfolio and managed portfolio of $263.86 million.
The company is expected to clear the remaining NPLs secured by mortgage bonds by end of March.
“After these acquisitions, ZAMCO will stop further acquisitions and focus on resolution and resuscitation. This will curb moral hazard in the banking sector and is a standard practice internationally for all asset management companies formed to resolve NPLs,” said the RBZ.
Incentives for mining, agriculture
RBZ said it will revamp the horticulture finance and gold development facility from $20 million to $40 million to promote exports.
The central bank introduced an export incentive scheme in May last year to promote the export of goods and services to enhance inflows of foreign currency. These are paid out in ‘bond notes.’
Gold deliveries to its Fidelity Printers and Refineries unit is seen at 25 tonnes this year from 21.4 tonnes last year while tobacco output is expected to be higher at 215 million kilogrammes after farmer increased the crop hectarage 10 percent to 107,000ha.
However Zimbabwe’s trade deficit improved by nearly 40 percent from $3,3 billion in 2015 to $1,985 billion in 2016 on the back of import control restrictions imposed by the government and tight foreign currency control measures.
“A combination of foreign currency management measures announced by the Bank in May 2016 and import management measures by the Ministry of Industry and Trade, as well as the effect of a stronger U.S. dollar on the country’s terms of trade, in part, explain the declining import bill in 2016,” said the RBZ.