Reserve Bank of Zimbabwe orders liquidation of 20 pct foreign currency earned by businesses

23 Août 2020

Harare, Zimbabwe, August 23 (Infosplusgabon) - Twenty per cent of foreign currency earned from local businesses will be liquidated upon depositing to prop up forex used on the exchange auction system.

This comes since the first foreign currency auction on 23 June, the Reserve Bank of Zimbabwe (RBZ) has been the main source of forex for this platform.

Speaking in the Mid-Term Monetary Policy Statement titled ‘Fostering Price Stability’ released on Friday, RBZ governor John Mangudya said foreign currency generated domestically was needed to support the forex auction.

“Following the decision to allow the use of free funds in the pricing of goods and services in the economy, the Bank is encouraged by the growth of the foreign exchange balances in the domestic foreign currency accounts, from US$352.4 million in January 2020 to US$404.8 million as at end of July 2020,” Mangudya said.

“In order to ensure that some of the domestic-generated foreign currency is utilised to sustain the auction, with immediate effect and going forward, 20% of the foreign currency receipts of providers of goods and services shall be liquidated at the point of depositing in the Domestic FCAs.”

He was however quick to add that all existing balances in the domestic FCAs would not be affected by this policy.

“This policy measure shall also not apply to recipients of free funds including individuals, embassies, non-governmental organisations, tobacco and cotton producers and Domestic FCAs for fuel companies,” Mangudya said.

Explaining this policy, Mangudya said that a number of holders of domestically generated foreign currency were not bringing their monies to the auction opting to take it, instead, to the parallel market instead.

“What we are trying to say here is very simple. Companies such as Innscor, National Foods, OK Zimbabwe, and TM Pick N Pay are always coming to the auction but their money is in their FCA accounts. So, we are saying what they would be spending domestically e would have been produced from the auction,” he said.

“For example, if you go to say Simbisa Brands they will sell you their products in foreign currency but that money won’t be seen again, instead they come to the auction.”

On Thursday, during a virtual conference with the Zimbabwe Revenue Authority, Mangudya had warned that they would soon be blacklisting companies that do not liquidate their foreign currency on the forex auction.

This was after the bank had noted, with concern, malpractices by certain business entities who were charging for goods and services at rates way above the rate obtained on the foreign currency auction.

“Such malpractices are counter-productive and negate the objective of price stability,” Mangudya said.

“In order to curb such delinquent behaviour and to enforce compliance, the Bank is proceeding to establish a toll free line through which the public/consumers will report to the Bank such malpractices and other foreign currency related transgressions.”

Given the disparities between the foreign currency auction exchange rates and those obtained in the parallel market, such malpractices highlighted were giving profit margins of as high as 45 percent.

Since the return of the foreign currency auction, the value of the ZWL has stabilised even on the parallel market but still remains a highly volatile currency.

As a result, the central bank announced a uniform retention level of export proceeds by exporters of 70 per cent which previously varied depending on the sector.

“In addition to this equity principle on export retention thresholds, the 30-day liquidation period of unused funds has been reviewed upwards to 60 days from the day of receipt of funds.

This is essential to enable exporters to better manage and plan their cashflows,” Mangudya said.

Explaining this measure, Mangudya said the idea was to instill confidence in exporters by allowing them to keep more of their foreign currency in order for them to bring it to the auction.

“Since its introduction on 23 June 2020, a total of US$137.4 million has been allotted against bids for US$157.8 million at the end of 9th auction on 18 August 2020.

“Effectively, the auction system has to date served 87.1% of the formal foreign exchange market demand,” said Mangudya in the Mid Term Monetary Policy Statement under review.

“Total foreign currency allotments have ranged between US$10.3 million and US$18.8 million per auction.”

The reason why the RBZ requires foreign currency on the auction is to stabilise the ZWL that has continued to falter since its introduction last year in June owing to a lack of forex, market confidence or mineral backing.

As such, the ZWL has plunged 1,212 per cent against the United States dollar, making it technically valueless.

In terms of how much foreign currency has been generated, Zimbabwe recorded a positive foreign currency net position of US$1.3 billion for the six months ending June 30, compared to a deficit of US$738.7 million for comparative 2019 period.

According to the central bank, total foreign currency receipts for the period January to June 30, 2020 amounted to US$3.16 billion, of which, US$1,96 billion were export proceeds.

“During the corresponding period in 2019, total foreign currency receipts amounted to USD2.69 billion, of which USD1,86 billion were export proceeds,” the central bank reported.

“The increase of 17.4% in total foreign currency receipts in the first quarter of 2020 was mainly driven by the increase in international remittances, drawdowns on lines of credit and increase in exports.”

Other measures to support the auction include the RBZ mandating that bureaux de changes' will be allowed to enhance their business by increasing their exchange rates from the current 3.5 to 5 per cent above the forex auction rate.

However, the bureaux de changes will be required to sell to the auction 80 per cent of their balances held every Monday.

FIN/ INFOSPLUSGABON/AGF/GABON2020

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