BY SHAME MAKOSHORI
ABOUT US$500 million could be circulating outside Zimbabwe’s banking system, Reserve Bank of Zimbabwe (RBZ) estimates showed last week, as industries said they had raised only a fraction of billions required to ride out a dire crisis.
The data, which was released on Monday last week, said the US$500 million was far higher than US$300 million currently available for transactions in Zimbabwe’s financial system.
Last week, the Confederation of Zimbabwe Industries (CZI) said manufacturing sector players raised about US$21 million in fresh capital during the third quarter.
The sector requires about US$2 billion to fund crucial transactions, including acquisition of machinery and raw materials.
The data is contained in a report titled Update on Recent Economic Developments and the Outlook, which demonstrates how banks have lost the battle to attract massive United States dollar stocks being kept outside the financial system by edgy consumers.
Most of these funds have ended up lubricating a stubborn parallel market, which has been behind recent inflationary surges.
In the document, central bank governor John Mangudya makes reference to the US$500 million in comments about external sector developments, where he discloses that total hard currency holdings could be around US$2 billion.
“The external sector position is expected to remain favourable, supported by strong recovery in the global economy,” Mangudya said.
“The current account is now projected to register a huge surplus position of about US$1,09 billion in 2021 up from the initial projection of US$611,5 million.
“The surplus on the current account continues to be driven by diaspora remittances and other transfers as reflected by the increase in the secondary income balance of close to 50% during the first half of 2021 over the same period in 2020.
“Merchandise exports increased by 22,8% from US$2,285 billion during the first half of 2020 to US$2,59 billion during the first half of 2021.
“The strong external sector performance has also led to a significant increase in foreign currency nostro balances which now stand at US$1,7 billion.
“Assuming an amount of at least US$500 million cash outside the banking sector, this translates to foreign currency holdings of above US$2 billion against equivalent of around US$300 million reserve money readily available for transactions,” the RBZ chief said.
Mangudya said these developments implied that the country was currently generating sufficient foreign currency to sustain the economy.
“Under normal circumstances, a strong external sector position signals a stronger nominal effective exchange rate,” the central bank chief noted.
In August, the RBZ revealed that about US$1,7 billion was sitting in banks’ foreign currency nostro accounts.
However, most of this amount was not available for lending, and the RBZ has been talking with banks to release the funding into the market.
On the deposit front, Zimbabwe’s banking sector has paid the price of waning market confidence since the 2004/2005 financial crisis when banks collapsed under the weight of a corporate governance rot and financial mismanagement that triggered a flight to safety by depositors.
Mangudya has stabilised the sector since coming into office in 2013.
But confidence continues to be hammered by operators’ reluctance to pay interest on deposits, while charging punitive fees on accounts.
This strategy has attracted Mangudya’s concern.
In August, the RBZ chief encouraged banks to begin paying interests on deposits, after negotiations with the Bankers Association of Zimbabwe.
Much of the foreign currency circulating outside the banking system has been channelled into a thriving black market, which has recently dominated the foreign exchange market and precipitated rocketing prices.
Last week, the RBZ lined up a sea of fresh policy proposals to the government, as monetary authorities scurried to stem a “worrisome” surge in parallel market rates.
However, Mangudya maintained the 7,8% growth target announced in July, saying bullish international commodity prices and a good agricultural season were still giving Zimbabwe’s under-fire economy impetus to ride out fresh headwinds.