HomeBusiness DigestRBZ’s US$150m deal stems bankruptcies

RBZ’s US$150m deal stems bankruptcies


RESERVE Bank of Zimbabwe (RBZ) governor John Mangudya says a deal inked with the Africa Export Import Bank (Afreximbank) involving the provision of Letters of Credit (LCs) for exporters has taken a huge burden off the foreign currency auction system, which has struggled to meet demand.

Mangudya, who spoke during last week Friday’s highly subscribed mid-term monetary policy statement (MPS) review webinar organised by the Zimbabwe Independent, the dominant business publication on the market, said LCs were boosted by banks’ agreement to extend forex indexed overdraft facilities to exporting firms.

In the mid-term Monetary Policy Statement (MPS) released early this month, the RBZ governor said the central bank had inked a US$150 million LCs facility with the regional lender to ameliorate auction system pressures.

Industries said last month that they were waiting for two months to receive allotted funds.

Last week, the RBZ chief illustrated how the system works and spinoffs to be gained from the LCs roll out.

“In order to ensure that we continue to reduce the backlog on the auction, we have put in place some Letters of Credit facilities, which we believe are going to lessen demand for foreign currency at the auction system,” Mangudya said.

“The demand for an entity like Unilever for example, they need about US$1 million per month. If they are coming to the auction they come with US$250 000 on a weekly basis. If we were to provide them with an LC of US$2 million from the US$150 million, it means for eight weeks they won’t be coming to the auction.

“So you have lessened the demand on the auction system. Surface Wilmar needs to produce 10 million litres of cooking oil. They need about US$8 million per month. If you provide them with an LC of US$8 million, it means the whole month they don’t come to the auction and you reduce demand. This is an effective way of managing the backlog,” he added.

MPS data showed that the forex auction system injected US$1,72 billion into companies within its first year.

The injection has been credited with boosting exporters’ capacity to import raw materials and serve the domestic market.

Mangudya said 56 auctions had been conducted by July 27, small-to-medium enterprises (SMEs) receiving about 14% of the allotments. The central bank chief said along with inking LCs, the central bank was talking to the regional lender to restructure Zimbabwe’s growing debt.

Last week he said local banks had moved to support the auction system.

“We are quite happy that the banks have taken this one positively. Some of them have started granting overdrafts in foreign currency to their clients so that they don’t cause their customers to wait for foreign currency from the reserve bank,” he added.

Zimbabwe has struggled to pay off debts as a result of the long-running foreign currency crisis, which was compounded by the outbreak of Covid-19 last year.

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