Pressure to safeguard investors’ earnings and deposits has mounted on the Reserve Bank of Zimbabwe and the Ministry of Finance and Economic Development, forcing the two to start considerations for the reintroduction of foreign currency accounts (FCAs).
FCAs existed before and were rendered ineffective when the economy adopted a multi-currency regime in 2009 after a decade of economic stagnation and hyperinflation that rendered the local dollar valueless. As the central bank struggled to meet foreign remittances and foreign corresponding and intermediary banks ditched Zimbabwe, calls for the reintroduction of FCAs grew among financial institutions. Prior to abolishment of FCAs NGOs and other companies lost millions to the central bank.
Calls have grown louder as electronic bank balances – which the central bank maintains are at par with the US dollar and bond notes – are losing value against hard currency daily, raising questions around financial reporting standards in Zimbabwe.
As a result, government was as of April assessing proposals by industry new financial reporting standards that take into consideration the implications of bond notes and multiple currencies on financial statements.
The Public Accountants and Auditors Board came up with a list of recommendations, including conversion of bond notes and RTG balances to US given that the two are not equivalent to hard currency.
As of this week, the dollar attracted a premium of 90 percent using bond notes and 120 percent on electronic transfers. Information at hand suggests the central bank and Treasury are mooting the reintroduction of foreign currency accounts, first for foreign investors to facilitate smooth repatriation of dividends to their home countries and boost confidence in the market.
Sources representing interests of major foreign investors in Zimbabwe said they had been consulted by Treasury and expected results soon. This, they say, dovetails with Government’s doing business reforms.
“We are glad to see that the government is planning to establish the investors’ foreign currency account,” said a source who requested not to be named.
“They say that investors could transfer their dividends back home so I think this is a good move, it should be realised and will ensure investors have more confidence in the Government and in the economy,” added the source.
“When investors want to repatriate their dividends it is not externalisation like what people want to make it look like. They are not taking all of their money but part of it after reinvesting and everything else. It’s even worse when they can’t import anything critical to their business,” said another source. Sources who spoke to Business Times said Government must make tough choices to make Zimbabwe more attractive to foreign capital. “It is difficult but it must be the direction; some policy measures must be put in place otherwise no investors will come”
Although efforts to get a comment from central bank Governor John Mangudya were fruitless at the time of going to print, an official at the centre of developments confirmed Government was indeed moving to improve the business environment by among other initiatives reintroducing the FCA.
“The truth of the matter is that we would like to strengthen the multi-currency system to preserve value for depositors and investors,” said the official.
Sources close to the central bank also said consultations had been done on various models with the reintroduction of FCA being among the popular options, though political buy in had been an issue.
“What is clear is that the current exchange rate is not sustainable. The price of fuel is distorted because of the exchange rate. Anyone in Southern Africa for instance doesn’t need to buy fuel from the Middle East because it’s very cheap in Zimbabwe at below $0,63,” said a source who requested not to be named.
Economist Brains Muchemwa said the reintroduction of the FCA is tantamount to re-dollarisation under new terms but a move which would be largely beneficial to business.
“That the current exchange rate regime is not sustainable and is failing by the day is clearer. An immediate policy intervention would be needed to allow the efficient market determination of exchange rates, failure of which it will eventually burst but with more disruptive consequences.
“The illusion that the bond notes and its electronic cousins sitting at $9,5 billion in the banking sector have equivalent value to the scarce US dollar has, unfortunately, created discord even at the policy level,” Muchemwa said.
Regrettably, this policy discord has dented confidence in the bond notes resulting in speculative pricing of currency, goods and services as there is some expectations in the air that it will be ditched sooner than later as indicated by the Minister of Finance.