Taurai Mangudhla
Total deposits in Zimbabwe hit $9.2bn in the first week of March, comprising $700m hard currency, the permanent secretary of the Ministry of Finance, George Guvamatanga, has said. Of the deposits, $4bn is borrowings, $3bn is in Treasury Bills, and $1bn under the central bank savings bond. This leaves $2bn to pay utilities, buy forex and shares, Guvamatanga said on Tuesday.
Of the available money, business believes 40% should be for external requirements while the balance should cater for local needs.
Guvamatanga said the country had adequate foreign currency supply and the new currency framework, which saw the introduction of an interbank forex system, was meant to correct distortions that resulted in the misappropriation of resources.
Although Guvamatanga insists that the interbank system is working, questions have emerged over the suitability and market competitiveness of the managed float model.
The involvement of the central bank in managing the float has been a constant point of debate while capacity remains an issue, given that only $65m has been traded on the market in five weeks against a monthly forex requirement of around $600m.
This has seen a disparity between the official exchange rate and the parallel rate widening. The situation has been made worse by the fact that banks are only availing forex to companies that have current invoices.
The forex backlog, prior to February 22, has not been serviced and this has created problems for companies whose suppliers are no longer willing to sell under new invoices when due invoices have not been honoured. As a result, some have turned to the parallel market while some retailers have started pricing their goods in US dollars.
The interbank rate for the RTGS dollar against the US dollar is just below 3.00, while the black market rate has breached 4.00, making the formal system less attractive. But this should not be a problem, as everywhere in the world, black market rates are always higher than the official rate. In fact, at 3.00, the interbank rate has been improving from a low of 2.50, with hopes that it would increase even further.
The real crux of the matter is accessibility, not the rate. So far, industry is finding it difficult to access forex from banks, and as a result, they are resorting to private sources thus fuelling the black market rate.
This has given analysts the misplaced comfort to say the new measures introduced by the central bank, mainly the floating rate of the RTGS dollar/bond notes, which was meant to improve the efficiency of the forex management system, is not working.
Persistence Gwanyanya, an economist, says the system has failed to achieve one of its biggest targets – to be more market oriented.
“The previous system was such that the RBZ played a bigger role, whereas this one was expected to improve the flow of foreign currency into the interbank market,” Gwanyanya said.
“When the RBZ came up with the interbank market, the thinking was that it would improve foreign market allocation in the economy but what is happening seems like we need to have a more market driven system.”
Gwanyanya added: “But obviously at the beginning the central bank might have been uncomfortable using a big bank, so they continue managing through a float. As of today, most of the foreign currency is being availed from the Reserve Bank.”
But hopes remain alive that the interbank rate will move to a point where it incentivises the holders of foreign currency to release them into circulation.
“We would like the market to be determined more by the demand and supply of foreign currency which entails a reduced role of the RBZ into the foreign currency market. The current situation where the bulk of the foreign currency is coming from the Reserve Bank is undesirable, but I think we will get there,” Gwanyanya said.
According to him, the country has enough foreign currency to meet market requirements, at least reading from the RTGS balances which are around $1.8bn against foreign currency in circulation which is around US$600m.
Another economist, John Robertson, said while there were a lot of variables, supply and demand remained the biggest factor to the success of the interbank currency market.
While the new system has managed to stabilise the rates, it has been largely a failure as the rates remain high and the black market is dominating.
“The demand for currency exceeds supply, and if the government wants to increase supply they can give loans and bonds to productive sectors so that export receipts grow,” said Robertson. “So far, I don’t think the new system is working because the parallel market has not been overcome, and people can’t buy forex through the banks. As a result they go to the private buyer,” Robertson added.
This comes after the RBZ recalled millions of US dollars worth of foreign lines of credit to banks for the inter-bank forex trade, effectively threatening the life of the facility in its infancy.
This put a huge dent in the central bank’s attempt to bring sanity into the foreign currency trade that has been dominated by illegal players who are pushing rates up through speculation.
William Manhimanzi, the RBZ deputy director for financial markets, money and capital markets, recently said some banks had not utilised the facility in the first three weeks, forcing the central bank to “recall some of the money” which lay idle.
However, sources said banks were, and still are, cautious given the history of policy inconsistencies in the country.
“The banks are saying they need board resolutions and that they are having problems with their systems, but there is nothing complicated about RTGS and TTs, so they are just excuses,” said a banker who requested not to be named.
