LIVINGSTONE MARUFU
The captains of the industry have engaged the government over the tight ZWL$ liquidity squeeze amid indications that the banks are failing to extend overdrafts to companies as the local currency run dry in the market.
The ZWL$ has strengthened in the past four weeks and this has created the demand for the local unit.
After Tuesday’s wholesale auction, the exchange rate strengthened to ZWL$4998.83per US$1 from ZWL$5395.9619 per US$1.
On Tuesday, foreign currency bidders only accessed just above US$460 130.60 from the benchmark of US$5m per week.
But this has affected the companies as they are failing to get new credit lines, even overdrafts from banks.
The Confederation of Zimbabwe Industries (CZI) president Kurai Matsheza told Business Times that the current squeeze has choked production in local firms as liquidity is needed to oil the market.
“The banks don’t have the ability to lend right now and they don’t have the capacity to support productive sectors given the liquidity crunch.
It is something that we are talking to the authorities on how we can unlock this current squeeze because production capacity has to be there and the economy has to keep on going. That equilibrium has to be there soon,” Matsheza said.
“We are discussing and making progress but we haven’t reached a conclusion and the authorities are aware of our concerns and are attending to this impasse.
“Both parties are confident of reaching a central point and it’s a matter of finally putting together on how we can break this squeeze,” he said.
The Zimbabwe National Chamber of Commerce president Mike Kamungeremu said the tight liquidity continues to affect production.
“The liquidity squeeze has brought stability but there is a need to strike an equilibrium to keep the economy going. We will keep engaging to achieve that,” he said.
Local firms are in dire need of ZWL$ but banks are struggling to extend loans.
“The liquidity is tight to such an extent that the banks are failing to extend ZWL$ overdraft to companies and this has left the companies on the edge as well as accelerating dollarisation,” wines and spirit maker, AfDIS managing director Stanley Muchenje said.
Last week, banks and the industry were pushing for the government to strike a balance in liquidity management amid fears that the current squeeze could derail economic growth as financial institutions run dry.
Banks said liquidity management is essential, but the challenge is to find a balance to keep the economy running.
The financial institutions said the ZWL$ liquidity is tight at the moment, however banks buy forex based on client’s demand and this squeeze is also affecting companies that buy forex through banks.
In May the ZWL$ plummeted to its lowest levels since the return of the ZWL$ prompting the government to implement a cocktail of measures authorities including the mopping up of the ZWL$ liquidity in the market to halt the rampant parallel market exchange rate, the major driver of local inflation resulting in price stability in the formal market.
It is believed that the authorities have mopped up over ZWL$300bn in the market since a raft of measures were implemented.
Businesses said the full impact of the measures, especially in terms of inflation stability, will be felt in July 2023 inflation numbers if the government stays the course and fully implements the measures.
In addition to those measures, the Treasury has instructed companies to pay 50% of their foreign currency Quarterly Payment Date (QPD) for June 2023 in local currency.
This is expected to foster demand for the local currency and the government said it has not accepted payment in US$ or any other currency for the portion of corporate income tax due in local currency for the June tax QPD.
The authorities promised to penalise vigorously for all late payments of the June 2023 QPD tax obligations. Despite the recent stability, market analysts believe the country will falter soon.
