THE Reserve Bank of Zimbabwe (RBZ) governor John Mangudya yesterday outlined measures to stabilize the economy while presenting the monetary policy statement.
Mangudya said the measures would need to be complimented by government through reducing expenditure
Below are some of the key measures announced by Mangudya.
- Strengthening the Multi-Currency System by introducing separate FCA accounts for Nostro and RTGS funds.
In February 2018, the Bank introduced a policy that requires banks to ring-fence foreign currency for foreign exchange earners that include international organizations, diaspora remittances, free funds, export retention proceeds and loan proceeds. Numerous enquiries received by the Bank point to the fact that this policy has not been implemented by some banks on a transparent basis that promotes confidence within the economy. With immediate effect, all banks are therefore directed to effectively operationalise the ring-fencing policy on Nostro foreign currency accounts by separating foreign currency accounts (FCAs) into two categories, namely Nostro FCAs and RTGS FCAs.
Accordingly all banks are directed to use their know-your-client (KYC) principles to comply with this directive to separate the accounts without requiring their clients to complete any other documentation other than for new bank accounts. Banks have been provided with a period of up to 15 October 2018 to fully comply with this policy measure. Banks are also expected to provide reasonable deposit rates on the Nostro FCAs in line with international best practice on such accounts.
This policy measure is expected to encourage exports, diaspora remittances, banking of foreign currency into the Nostro FCAs and to eliminate the commingling or dilution effect of RTGS balances on Nostro foreign currency accounts. The relationship between the two categories of the FCAs shall continue to be at parity. This is essential in order to preserve value for money for the banking public and investors during the transition to a more market based foreign currency allocation system that shall be implemented once the economic fundamentals are appropriate to do so.
As a further support to this measure and to provide credit enhancement or deposit protection for the Nostro FCAs, the Reserve Bank is finalising discussions with the 7
African Export-Import Bank (Afreximbank) towards a US$500 million Nostro Stabilisation Guarantee Facility (NSGF) to provide Nostro FCA holders with assurance that foreign currency shall be available when required by the account holders. The NSGF which will be similar to the AFTRADES Facility that guarantees interbank trading in Zimbabwe is targeted to be in place by the end of October 2018.
For the avoidance of doubt, foreign currency in the Nostro FCAs pertains to free funds, diaspora remittances, international organisations’ remittances, portfolio investment inflows, loan proceeds and export retention proceeds. It is also essential to note that all exporters retain 100% of their export proceeds with the exception of gold producers that retain 30% of export proceeds; platinum, diamonds and chrome 35% and; 20% for tobacco and cotton producers.
- Credit Lines for Strategic Requirements
The Bank has finalised putting in place facilities in an amount of US$500 million to cater for importation of strategic requirements that include fuel, electricity, cooking oil, wheat, packaging, etc. The facilities are from Gemcorp US$250 million, Afreximbank US$150 million and Afrigrain US$100 million. These facilities are over and above the US$100 million from CDC/Standard Chartered Bank, US$100 million from Ecobank, US$30 million from IDC of South Africa to Agribank and US$25 million from the African Development Bank (AfDB) to CABS Building Society.
The Bank is also negotiating with a number of international financial institutions for medium to long term financial facilities that are needed to continue to bring sanity in the foreign exchange market and to assist in the sustainable recovery of the economy. This is in addition to the external resource mobilisation programme being vigorously pursued by Monetary Authorities to clear the country’s external debt arrears to various creditors. 8
- Foreign Payment Transactions.
In order to minimize incidents of externalization of foreign currency, the following measures, which are in line with international best practice, have been put in place for banks and the banking public to adhere to:-
(i) Use of Letters of Credit (LCs) for high value transactions.
(ii) All imports to be supported by invoices whose banking details match with the payee’s name and bank account details.
(iii) Strict adherence by banks to customer due diligence (CDD).
(iv) Export proceeds to be remitted on a timely basis in line with existing rules and regulations.
- Purchase of Fuel in Zimbabwe by Foreign Truckers in Foreign Currency
It has come to the attention of the Bank that foreign truckers plying the Zimbabwean routes are involved in foreign currency arbitrage activities in Zimbabwe by trading in the parallel market of foreign currency and purchasing fuel in Zimbabwe at the official rate of exchange. In order to deal with this rent seeking behaviour, with immediate effect, all foreign truckers plying the Zimbabwean routes shall pay for their fuel in Zimbabwe in foreign currency.
The same shall apply to foreign traders buying goods in Zimbabwe for sale in the neighbouring countries.
- Purchase of Gold by Jewelers in Foreign Currency.
The current policy provides that where a jeweler purchases gold from Fidelity Printers and Refiners (FPR) using RTGS funds, upon export of the jewelry, the jeweler retains 35% of the gross export value for own use. The 65% balance is transferred to the Reserve Bank Nostro account for national requirements.
In order to mitigate against arbitrage opportunities or abuse of this facility, with immediate effect, all purchases of gold by Jewelers from FPR shall be in foreign currency and that Jewelers shall retain 100% of their export proceeds. 9
- Settlement of Capital Gains Tax in Foreign Currency when using Offshore Funds.
In February 2018, the Bank introduced a policy that allows individuals, with justification, to sell their immovable properties to buyers using offshore funds and, in some instances, to retain the sale proceeds offshore provided prior Reserve Bank approval is obtained. The policy has been well received by the real estate sector and the Bank wishes to enhance the efficacy of this policy by ensuring that all sellers of immovable property to buyers with offshore funds are required to pay Capital Gains Tax from offshore sources into a ZIMRA Designated Nostro FCA. Evidence of payment shall be required during ZIMRA interviews to enable issuance of tax clearance certificate.
- Cross Border Investment and Offshore Capital Raising Initiatives.
The Reserve Bank fully supports the presence of local businesses in the region and across the globe for purposes of expanding markets and raising funds to support local operations.
In order for the country to derive maximum benefits from offshore investments undertaken by local entities, going forward, all offshore investments in the form of offshore holding companies intending to dispose of part of their shares to foreign investors shall be required to repatriate all the realized proceeds to Zimbabwe. In cases where the offshore holding company intends to expand into other countries, a minimum portion of raised capital equal to the level of dilution should be remitted to Zimbabwe to support local operations.
- Introduction of Statutory Reserve Requirement to mop up excess liquidity
Given the increased creation of money within the economy mainly as a result of fiscal imbalances, the Bank shall be introducing the statutory reserves requirement with effect from 1 November 2018 at a level of 5% on RTGS FCAs on a weekly compliance basis in order to mop up excess liquidity from the market.
- Issuance of Treasury Bills (TBs) Through an Auction System. 11
In order to promote transparency in the issuance of TBs, with effect from 1 November 2018, the Bank shall be inviting tenders on behalf of Government, for investors to participate in the auction system of TBs.
- Continuation of RBZ Savings Bonds
The Bank shall continue to use Savings Bonds for mopping up excess liquidity from the market. As at 31 August 2018 the Savings Bonds had raised $1.5 billion.
- Construction Finance Facility.
The Reserve Bank has expanded the productive sector facilities to include the establishment of a $50 million Construction Finance Facility for retooling and working capital requirements for the construction industry in line with the growing economy. This facility, like all other facilities, shall be disbursed through normal banking channels with an all-inclusive interest rate of 10%.
- Strengthening the Monetary Policy Committee
The Bank is in the process of strengthening the Monetary Policy Committee (MPC) to provide an effective process for Monetary Policy in line with best practice.
- Capitalisation of Banking Institutions
As the capital deadline approaches, banking institutions are required to revisit their respective capitalisation plans to ensure compliance with their preferred strategic tier capital requirements on the set date, and submit revised plans to the Reserve Bank by 30 June 2019. For the avoidance of doubt, the following minimum capital requirements shall apply with effect from January 2020. ENDS
The AFTRADES window shall remain in place as a lender of last resort facility to cater for financial institutions that require accommodation.