RBZ battles to clear forex backlog

LIVINGSTONE MARUFU

The Reserve Bank of Zimbabwe (RBZ) is battling to clear a foreign currency allocation backlog of about US$75m, forcing companies to source the greenback from the parallel market to fund importation of raw materials, the Confederation of Zimbabwe Industries (CZI) has said.

CZI president Kurai Matsheza told Business Times that it takes up to six weeks  for successful bidders to  receive their allocations.

This week, the dollar was trading at ZWL$116.6:US$1 at the foreign currency auction system. But, it’s more than double on the parallel market where the rate stood at ZWL$240:US$1 on the back of increased demand.

“The industry has a backlog of between four to six weeks.  There has to be a way to clear it so that there is less pressure on the parallel market.

“The danger of a backlog is that companies will go to the parallel market with high rates to  acquire money as quickly as possible to compensate for the lost time on the auction,” Matsheza said.

Efforts to get a comment from the RBZ governor, John Mangudya were futile.

The government believes the parallel market constitutes less than 10% of the foreign currency market and should not dictate the exchange rate.

But industrialists believe that the auction market only caters for 30% of the sector’s needs.

However, companies are using the parallel market rate when pricing their products.

The country gets close to US$800m monthly of export receipts and that could be adequate to support industry growth and demand for foreign currency in the market.

The local banking sector is now sitting on US$1,7bn in foreign currency deposits which banks are failing to utilise.

Matsheza said challenges being faced at the auction system is a reflection of an incomplete market as banks are not lending.

Experts say lending should provide liquidity in the market.

The Oil Expressers Association of Zimbabwe and fertiliser companies among other companies  are utilising existing letters of credit for the importation of strategic commodities to reduce demand on the foreign currency auction system.

The central bank has put in place a US$150m letter of credit facility with Afreximbank which has seen  banks issuing letters of credit to their qualifying clients to import essential raw materials and other inputs to support the current growth trajectory.

The auction system was introduced in 2020.

Over US$1.72bn was allotted on the foreign currency auction system since it began operating.