IN recent weeks some financial institutions have announced they are further reducing limits for foreign card payments such as MasterCard, Visa Card and debit card settlements with some suspending the use of such payments altogether, indicating the worsening liquidity crunch and foreign currency shortages.
By Hazel Ndebele
This comes as recent statistics from the central bank show that Zimbabweans are holding on to their United States dollars as the unpredictable economic environment deteriorates.
Statistics from the Reserve Bank of Zimbabwe (RBZ)’s monthly economic report show that in April the country circulated about US$334,61 million before the figure declined to US$290,67 million in May. It further declined to US$138,98 million in June and US$101,82 million in July.
Zimbabwe is experiencing an economic crisis which has lasted for almost two decades. The crisis is showing no signs of abating.
The crisis is characterised by the debilitating liquidity crunch, company closures, retrenchments as well as a cash crisis which has resulted in long winding bank queues.
In a bid to survive in this kind of environment, financial institutions have had to adopt different measures and strategies. In particular, banks have been struggling with their mandate of providing cash to their customers as many walk away empty handed.
Most banks are no longer giving out cash in US dollars, but give out either bond notes or coins. Some banks have reduced maximum daily withdrawals to as little as $10 in coins.
Limitations on foreign card payments and in some instances suspension is evidence of worsening foreign currency shortages.
Last week one of the few banks which were still offering huge amounts when transacting using their foreign cards, Stanbic announced new limits for the transactions.
“Dear valued customer, please be advised that our foreign card payment limits have been revised from US$1 500 weekly to US$1 500 per month with immediate effect,” the bank wrote on its website.
In the same week Econet Wireless also announced that its subsidiary EcoCash which is the country’s largest mobile payment platform, has suspended the use of its MasterCards outside the country due to worsening foreign currency shortages.
The company joined several other local banks that have stopped usage of either Visa or MasterCards outside the country due to the persisting foreign currency shortages that have hamstrung foreign payments.
“Due to the foreign currency challenges, we regret to advise that with immediate effect EcoCash will be suspending international transactions on the debit card.
“However, with effect from November 1, 2017, we are happy to advise that you will be able to transact with the debit card outside Zimbabwe upon pre-funding at your nearest Econet shop,” the company said in a statement.
EcoCash, however, said the card remained usable within Zimbabwe.
Several banks, including CBZ and FBC, have already stopped funding MasterCard and Visa card usage outside the country. Most banks have adopted a pre-funding model, which strictly requires one to make a deposit of US dollars before accessing the cash abroad.
Zimbabwean companies are struggling to make foreign payments due to depleting nostro balances. This has resulted in many companies using unsafe means to get their money outside the country through the use of crypto currencies like the Bitcoin. One can make online and foreign payments without a struggle using the Bitcoin. However it has been regarded as unsafe as accounts can be hacked.
Economist John Robertson said measures being taken by financial institutions started two years ago and they are only being done to survive in a worsening economic crisis.
“Such measures signal the scarcity of foreign currency. There is no foreign currency being poured in the country and therefore the money will continue becoming less and less. Moreover we are not generating the money ourselves in any way,” Robertson said.
“Zimbabwe has spoiled its record as a creditor and therefore we cannot borrow any money as we are known for not being able to pay back on time. As a country we are losing out on the much needed foreign direct investment (FDI) which can bring foreign currency.”
Robertson added that there is need for the country to review its policies in order to attract FDI.
“The foreign currency shortages and the liquidity crunch the country is facing are all self-inflicted problems. We are doing nothing to correct the investment restrictions, in which if done, we will see factories reopening and mines starting to produce for our exports. For as long as government continues to do nothing the situation will only worsen,” Robertson pointed out.
Last year, Zimbabwe attracted US$319 million in FDI inflows a plunge from US$421 million in 2015. Zimbabwe still lags behind its regional peers such as Mozambique, South Africa and Zambia who registered US$3 billion, US$2,3 billion and US$469 million, respectively in FDI inflows last year. In 2014, the country’s FDI amounted to US$545 million, showing that investment amounts have been decreasing over the last few years.
Economist Godfrey Kanyenze said the tightening of forex allocation signals the worsening economic crisis exacerbated by infighting in Zanu PF.
“This shows there is non-resolution of issues affecting the country. The country is hurtling down the precipice with reckless abandon. As the reshuffle of cabinet last week suggests, there is no room for pretence. The faces that represented reform such as that of (former finance minister Patrick) Chinamasa have been removed. There is no room for pretence. All the leopard’s spots are out. The old man (Mugabe) has slammed the door shut,” Kanyenze said.
“Confidence is needed to revive the economy, but the reshuffle and infighting in Zanu PF won’t restore confidence.
There will be no resolution to the liquidity crunch and debt repayment until the election. Until then we are alone.”