PHILLIMON MHLANGA
Zimbabwe’s foreign payments backlog has worsened with the central bank yesterday indicating that the buildup has surged 17 percent to over $700 million from $600 million in April this year due to deepening foreign currency crisis which has restricted the importation of critical raw materials and equipment, Business Times has learnt.
The country which uses a basket of currencies including the United States dollar, South African rand and local bond notes, among others, is battling foreign currency shortages that appear to have worsened since the closure of the tobacco selling season in July.
The shortages have resulted in a backlog of foreign payments, which have forced a number of companies to source hard currency from the black market at a higher premium to meet their foreign obligations as the situation continues to deteriorate. Over the past few months, cash premiums have risen from about 70 percent to over 100 percent for high value notes.
Reserve Bank of Zimbabwe governor John Mangudya told Business Times from New York that the country’s international payments backlog had surged to $700 million. Mangudya is part President Emmerson Mnangagwa’s delegation attending the United Nations General Assembly.
Mangudya however, said he expected the situation to ease as the country was expecting to receive “export proceeds and other foreign receipts like loan proceeds”.
“According to our numbers, the current backlog is around $700 million,” Mangudya told Business Times on Wednesday.
“It’s not a static number. It goes down when we receive export proceeds and other foreign receipts like loan proceeds.”
Mangudya, however, expects Zimbabwe’s foreign payments backlog to ease as the country begins draw down of the $500 million facility from Afreximbank.
Afreximbank has been Zimbabwe’s biggest benefactor and has cumulatively advanced over $2 billion in facilities to Zimbabwe at a time when most global lenders had stopped extending fresh lines of credit. Despite the Afreximbank’s support, Zimbabwe is still faced with a double barreled foreign currency and liquidity crisis.
Government has been struggling to liquefy an economy that has been slowly grinding to a halt due to severe liquidity crisis that has resulted in companies failing to settle on time their external payments for critical raw materials and other products.
Analysts told this newspaper yesterday the situation had worsened, warning it could get worse if the productive sectors failed to ramp up exports.
The situation, they said, would have dire consequences on critical industries, including mining, which heavily depend on imported raw material and equipment.
The liquidity conditions have been occasioned by serious mismatch between exports and imports, where the latter has exceeded the former by far, resulting in the rapid depletion of nostro accounts.
Zimbabwe’s total exports this year amounts to $1,96 billion against an import bill of about $3,4 billion, meaning the trade deficit is about $1,4 billion.
“We are concerned that this [worsening foreign payments backlog may lead to shortages,” Busisa Moyo, a former president of the Confederation of Zimbabwe Industries said yesterday.
“The fuel sector is taking the lion’s share of what is under the RBZ’s control which is 30-35 percent and 65-70 percent which is under the control of banks and exporters.
“At the heart of our challenges is a fixed exchange rate of 1:1 between the United States dollar and real time gross settlement, credit balances and plastic money. The rate that is prevailing on the alternative market is 1:2,2. If industry buys from this alternative market, we are likely to see price increases of at least 120 percent.”
Denford Mutashu, the president of the Confederation of Zimbabwe Retailers said: “The foreign currency backlog arises from increased demand for forex against declining supply owing to the end of the tobacco season and increased production and fuel demands.
“That the gap keeps widening is worrying. The finance minister should fix the fiscal side of the economy which keeps piling misery on the monetary authorities.”
The depletion of banks’ nostros accounts has created serious settlement problems for international payments, resulting in most banks having a backlog going back as far as last year, several banking sources told Business Times.
The problems are part of an intensifying cash crisis the country, which has resulted in the disappearance of the United States dollar.
Other sources within the banking sector and industry said banks nowhad long queues of people wanting to make foreign payments. They said even those placed on the top of a priority list put in place by the RBZ were failing to get funding for their foreign payments, they said.
The RBZ had indicated that the priority list was meant “to promote efficiency utilisation of foreign exchange and to re-orient import demand towards productive uses”.
Importers, especially retailers, are fretting over delays in processing payments to cross border suppliers, seriously affecting their ability to restock.
Although there is a trend towards promotion of local products, Zimbabwe still depends on imports due to the fact that local industries have collapsed or are operating at very low capacity.
The situation has equally affected the mining, manufacturing and construction industries.
Parents and guardians paying school fees overseas were also being affected by the delays, which have resulted in children at foreign universities owing learning institutions huge sums of money.
Over the past few years, Zimbabwe has lost more than 100 correspondent banking relationships due to high country risk.
The situation is likely to worsen as reputable international banks continue to shun local banks in a de-risking exercise, because of Zimbabwe’s high risk profile which is likely to be worsened by imposition of sanctions by west.
Zimbabwe’s risk profile was working against it as correspondent banks-supposed to clear payments between local financial institutions and foreign suppliers-were moving to minimise Zimbabwean transactions in a risk skirting move.
Failure to restore critical correspondent banking relationships will result in the country failing to execute international payments.
Correspondent banking represents the cornerstone of global payment system designed to facilitate the settlement of cross border financial transactions. This has left Zimbabwean financial institutions struggling to access the global financial systems and as a result, many banks are forced to use third parties to transact.
President Mnangagwa is preaching the Zimbabwe is open for business mantra and is on a crusade to woo foreign investors.
