Zimbabwean banks and companies are facing hurdles in accessing offshore funds as foreign banks are reportedly demanding payment upfront before extending loans due to the high country risk, it has emerged.
The high country risk comes after Zimbabwe lost about 80 lines of credit and correspondent banking relationships with multiple international lenders over the past few years due to embargoes and debt.
Reserve Bank Governor John Mangudya (pictured) this week said Zimbabwe’s economy was faced with an imperfect situation that needs resilience.
“Even if today you may want to go outside the country to a foreign bank to get money, you need to pay money first to get a loan because of a perceived high country risk,” Mangudya said.
Zimbabwe which has arrears and debt accumulation over the years now stands at US$17.5bn out of which international creditors are owed US$14.04bn while domestic debt stands at US$3.4bn.
The country is so isolated to the extent that it has only two banks in the whole world that could avail finance to the Southern African country.
Mangudya told Business Times that ramping up of production can extricate the nation from the hostility it is facing from international lenders.
He said sanctions have prevented local banks from accessing credit easily from abroad. The credit is key for lending in the economy.
“When you look at the country’s rankings in terms of high country risk those numbers mean nothing. These super powers make us look like second class citizens in the international world,” the RBZ chief said.
Mangudya said the exodus of correspondent banks out of Zimbabwe is causing payment gridlocks to exporters and importers as it takes time for transactions to reflect.
A correspondent bank, which is a third-party financial institution that acts as an intermediary between domestic and international banks, is key to facilitating foreign currency exchange and payments across the world.
Mangudya also revealed that local banks were not utilising the interbank trade due to the compliance risk.
“They are afraid of being fined under the Office of Foreign Assets Control rules therefore they are de-risking by not touching each other’s money.
“Given that the banks don’t want to be under risk they don’t do interbank trades, showing that we have external influence in our economy,” he said.
RBZ commended the business community for being resilient and helping the economy grow under these harsh environments.
Mangudya said there is too much demand for foreign currency and this means businesses will never be satisfied with the amount of foreign currency in the market.
“The system needs an overhaul which means we need to change the system. We need to come up with a strategy that at what point do we need to remove a dual system. As long as we continue with the dual currency system these problems will persist,” he said.