ZIMBABWE’S unsustainable trade or current account deficit, poor balance-of-payment position as well as massive revenue leakages and an uneven distribution of liquidity in the market are the major reasons behind the prevailing serious cash shortages buffeting the economy, Zimbabwe Independent has established.
The situation has in recent weeks exacerbated due to depleted nostro accounts balances which have been drained by the ballooning import bill.
Banking institutions have in recent months witnessed increased pressure on their nostro accounts because Zimbabwe is now a net importer due to a wave of company closures and a dramatic fall in production. This has resulted in banks being unable to import cash to meet their clients’ demands and properly perform their financial intermediation role.
This situation, characterised by a trade deficit, huge balance-of-payments gap and widening current account deficit, prompted the Reserve Bank of Zimbabwe (RBZ) to increase the percentage amount that banks could keep in their nostro accounts from 5% to 10% of total deposits.
The depletion of nostro accounts held by local banks has resulted in increased bottlenecks in international payments.
Senior bank executives who spoke to the Independent this week said with exports at US$2,5 billion in 2015 against imports of US$6 billion, Zimbabwe requires far-reaching measures to contain the import bill and improve the liquidity situation paralysing the economy.
Weakening commodity prices on the international market compounded with lower-than-projected tobacco deliveries against the backdrop of an El Nino-induced drought have reduced export earnings. This in turn has resulted in the depletion of nostro accounts of banking institutions.
“Several factors have left a primary producer like Zimbabwe in deep trouble. With commodity prices and a 20% decline in tobacco output, our current account can only be left in precarious position,” a bank executive who spoke on condition of anonymity said.
RBZ governor John Mangudya could not be reached for comment as his phone went unanswered.
However, another banker said the distribution of foreign currency earnings was skewed in favour of consumption instead of production, as well as liquidity accumulation by major banks was also a factor.
“The international financial system is designed in a way that Tier1 and Tier2 banks which are mainly your foreign-owned banks, benefit from the export receipts. In other words, export earnings favour stronger financial intermediaries meaning that your POSB, ZB and Agribank do not benefit much and this would obviously affect their liquidity situation,” the banker said.
On leakages, the banker said Zimbabwe had become a reliable source outside the United States, Panama and Equador — who use the world’s most covertible currency — to siphon the greenback following dollarisation or multiple currencies system in 2009 in the aftermath of hyperinflation which decimated the Zimbabwe dollar.
Foreign traders like the Chinese and other nationalities as well as smugglers salt away billions to their homelands or safe havens, fuelling the liquidity crunch.
According to a paper compiled by a local asset management firm, government’s growing appetite for Treasury Bills (TBs) has also exacerbated the liquidity situation.
Treasury Bills issued by Government increased significantly in 2015, with over US$1 billion worth of TBs being issued between March and December 2015, according to RBZ statistics.
“What compounded the depletion of bank nostro account balances was the fact that the cash received from Treasury Bills sales on the secondary market was almost immediately used to import goods and services, while in some cases, the funds were repatriated or externalised by the beneficiaries,” Zimnat Asset Management said recently in a paper on the cash crunch.
“This basically means that the local Real Time Gross Settlement system US dollar receipts from TBs discounting, added further pressure on bank nostro accounts, and this all happened at a time when banks were required to maintain 5% of their total deposits in nostro accounts. The pressure ultimately resulted in the delaying of international payments and then eventually into the current cash shortage.”
The Confederation of Zimbabwe Industries (CZI) has moved to propose measures to reduce the country’s huge import bill through a submission of a paper to the RBZ and government outlining items which have higher tariffs to discourage imports ahead of the next monetary policy statement and the mid-term fiscal policy review statement.
“Zimbabwe has reached a point where smuggling of certain finished goods has reached unprecedented proportions. This is in our view a much more serious issue than the issue of substandard goods. The impact of smuggling is a huge loss in revenue for government and the undermining of our industrial policy,” CZI said in its position paper submitted to the Ministry of Industry and Commerce.
“Our key recommendation is that the Consignment Based Conformity Assessment scheme is oriented to focus on reduction of smuggling. Therefore, only selected finished products must be on the scheme. In that regard, all raw materials, intermediate input, spare parts and finished products not made in Zimbabwe and deemed at low risk for smuggling should be excluded from the scheme.”
In February the RBZ announced stringent measures which include capping cash withdrawals without one-day prior notice to US$10 000, restrictions on offshore investment and suspending free funds to tackle illicit money flows and capital flight remittances after nearly US$2 billion evaporated from the capital-starved economy through externalisation last year.
Announcing the monetary policy Statement, Mangudya said the apex bank would implement prudential measures to mitigate illicit financial flows haemorrhaging the economy.
He said out of the US$1,8 billion externalised in 2015, US$1,2 billion was siphoned out by corporates with outward individual remittances accounting for the balance.