BUSINESS REPORTER
President Emmerson Mnangagwa has ordered banks to stop lending to the government and the private sector pending investigations among a raft of measures to stabilise the economy following a sharp depreciation of the local currency.
The unprecedented move comes as the local currency has been depreciating against the greenback amid high demand for the dollar which is seen as a store of value.
In a statement Saturday, Mnangagwa said there were economic hitmen behind the exchange rate depreciation despite the existence of strong economic fundamentals.
“In order to minimise the creation of broad money that is prone to abuse for purposes of manipulating the exchange rate for financial gains and to allow current investigations, lending by banks to both the government and the private sector is hereby suspended with immediate effect until further notice,” Mnangagwa said.
The move will leave the banking sector on the edge. By their nature, banks survive through lending (interest income). The core business of banks is to create credit and allocate capital efficiently. Banks also get income from non-funded streams ( bank and transaction charges, service fees and other services).
Mnangagwa said the foreign currency auction backlog would be cleared by the end of May. With immediate effect all foreign currency allotments are to be settled within 14 days post auction allotment and the auction system only allots foreign currency that is available, Mnangagwa said.
Retailers and wholesalers have been ordered to benchmark their pricing to the average interbank rate with a maximum allowable variance of 10%.
He said the willing buyer willing seller system would continue and that overtime willing buyer willing seller and auction will provide basis for orderly unification of exchange rate.
The limit under the willing buyer willing seller has been increased to US$5000 from US$1000 with a limit of US$10,000 per week for an individual.
Government has put a 4% intermediated money transfer tax (IMMT) on all domestic foreign currency transfers. However, forex payments settled through willing buyer willing seller to be exempt from IMMT .
Government reviewed the foreign currency withdrawal levy to 2% from 5 cents per transaction to discourage the withdrawal of cash.
As part of measures to promote the use of the local currency, settlement of forex tax obligations in local currency to be done at the interbank rate established
Similarly, liquidation of the surrender portion of export proceeds to be settled at the willing buyer, willing seller exchange rate. Exporters have been clamouring for an increase in retention threshold with industry proposing to wholly retain export proceeds.
As part of measures to deter speculative short term buying on the Zimbabwe Stock Exchange, Mnangagwa reviewed capital gains tax to 40% for shares held for a period of 270 days.
Capital gains tax will remain at 20% for long term investment beyond 270 days.
