Forex shortage hinders RBZ repayment plans

RBZ Deputy Governor Dr Kupukile Mlambo
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Illegal foreign currency trading on the parallel market has resurfaced, further hindering efforts by the Reserve Bank of Zimbabwe (RBZ) to clear the backlog of foreign payments of close to $200 million, RBZ Deputy Governor Dr Kupukile Mlambo has said.

Before the introduction of a multi-currency system in February 2009, illicit dealings such as foreign currency trading on the parallel market were one of the challenges that impacted negatively on the country’s economy by fuelling price distortions and inflation.

Speaking in Bulawayo on Thursday last week, Dr Mlambo said following the adoption of bond notes, illegal foreign currency trading on the parallel market resurfaced.

The RBZ introduced bond notes, which are at par with the United States dollar towards the end of last year as an export incentive of five percent to encourage exporters to export more for the country to generate foreign currency.

A survey carried out on illegal foreign currency dealers commonly referred to as Osiphatheleni by this paper in Bulawayo on Friday established that to get US$100, one needed to have at least between $107 and $108 in bond notes.

“What is interesting is that in 2009 when we dollarised, the cash-deposit ratio was 43 percent, which was really high and there was no cash in the economy,” said Dr Mlambo.

“In December 2016, that ratio was 4,8 percent and even more alarming for me is that when l look at the cash and notes holdings for commercial banks, as a share of liquidity assets, it is only two percent.”

The function where Dr Mlambo was speaking was organised by the Seventh Day Adventist Church’s choral music group, Peace Messengers.

He said the above scenario implied that there was no cash in the formal system because cash was being held outside.

“This also means that every time we throw in bond notes into the market, they come out of the formal system and that is why we are all puzzled where the bond notes are, because no one wanted them, but suddenly they have disappeared,” he said.

“The upshot of all these things is firstly, we have long queues in the banks, secondly we are not able to pay for essential raw materials with a huge backlog of foreign payments of almost $200 million that we still need to pay.”

Dr Mlambo said some of the foreign payments backlog were between three and six months old.

He said some local companies intending to pay for essential raw materials may have money in their accounts, but no foreign currency to settle the transactions.

“But more alarmingly is the rise of the black market that we are seeing now,” he said. “If you go near the Tredgold Building (in Bulawayo) there is a huge market that is going on there. If you go to Roadport or Eastgate in Harare, you see people holding huge amounts of bond notes and dollars.”

If the country is to sustain economic recovery on the back of the constraints, Dr Mlambo said, Zimbabwe needed to address the large domestic fiscal deficit, large external deficit, and the huge confidence deficit, which has made it difficult for the country to attract foreign direct investment.

“It is these three deficits that are actually behind your current liquidity deficit,” he said. “The current shortage of cash is really a reflection of scarcity of foreign currency and the scarcity of foreign currency is not a new phenomenon in Zimbabwe, it has been with us since the 1960s. And this is related to the way we industrialised as a country.

“We are facing a shortage of foreign currency, not a shortage of liquidity.”