THE Reserve Bank of Zimbabwe has issued Letters of Credit (LCs) worth US$182,3m from February to July this year to sustain Zimbabwe’s critical imports and also help the country to build up significant foreign currency reserves.
Letters of credit are debt instruments that are issued by banks for the purposes of importation that typically have a tenure which can be payable after 60 days, 90 days or 180 days depending on the agreement between the bank and the importer.
The development comes at a time when the country is facing crippling forex shortages among other myriad of challenges.
RBZ governor John Mangudya told Business Times that the majority of companies in the cooking oil and fuel sectors are currently dependent on LCs for critical imports to continue with production due to prevailing foreign currency shortages.
He said LCs helped various companies which were on the brink of closure to continue with production.
“From February, we have issued letters of credit worth US$182,3m to help the manufacturing sector import critical raw materials. In February, LCs worth US$5,09m were issued, US$9,94m in March, US$36,2m in April while in May and June over US$56m worth of LCs were issued for each month,” Mangudya said.
“In July US$17,6m worth of LCs were issued towards the settlement of foreign obligations such as the importation of raw materials critical for industrial production.”
The authorities say continued use of the LCs will give the economy time to work on increasing its foreign currency levels.
Since last year over US$300m of LCs were issued for fuel, wheat and crude oil procurement.
Mangudya said LCs will work as revolving funds from Afreximbank which will be cycled for three years for the importation of critical commodities such as fertilisers, medical drugs, fuels, crude oil for cooking oil, soya beans and other raw materials for industry.
LCs reduce the burden on various lines of credit that Zimbabwe is currently drawing down from.
RBZ said the pricing of all the Afreximbank LCs is competitive, benchmarked to international standards and within the stipulated thresholds of such borrowings for the economy.
In 2018 alone, the country secured credit lines worth US$880m from regional and international banks as efforts to resolve the foreign currency shortages biting the economy intensify.
The country is currently drawing down from the Afreximbank US$500m facility, US$250m from Germcorp of UK, US$100m from CDC and US$30m from Industrial Development Corporation of South Africa.
Mangudya said these credit lines are dealing with disequilibrium in the foreign exchange supply.
Tobacco auction floors which were expected to be ease forex challenges have not done enough to help the forex situation in the country.
Figures obtained from RBZ show that the country’s Nostro Foreign Currency Accounts (FCAs) currently hold around US$1b (which calculates to about three months import cover). The bulk of that money belongs to individuals and companies, and is not controlled by the central bank.