RBZ bans third country foreign payments by banks

The Reserve Bank of Zimbabwe (RBZ) has banned third country foreign payments, except for fuel, in measures to facilitate critical transactions to keep the economy going smoothly and encourage remittance of export proceeds back to the country.

The exemption on fuel would ensure the country avoids economic freeze given the critical importance of fuel in all economic activities.

Notably, the ban makes it inconvenient for economic agents to keep export proceeds offshore to avoid the central bank’s surrender requirements.

On Wednesday last week, the apex bank issued payment exemption guidelines on offshore drawdowns relating to financing of payments for marketable commodities such as tobacco and cotton.

Such exemptions come as banks have been instructed not to lend to government, individuals and corporates according to presidential resolutions announced on Saturday.

Economists believe policy measures reflect a case by case enhancement and refinement by the Government, through the RBZ, of measures aimed at eliminating the malfeasance in the economy.

The guidelines provide clarity to conduct of banks in extending different forms for financial services to clients following the ban on bank lending announced by the Government at the weekend as part of broad measures to bring back sanity in the economy.

The bank said last Wednesday; “Further to our letter of May 9, 2022 on measures to restore confidence, preserve value and restore macroeconomic stability we advise that offshore drawdowns include foreign facilities for tobacco, cotton and other marketable commodities as well as establishment of letters of credit which are cash covered.”

Local funding of tobacco and cotton have been also classified as offshore facilities, meaning such loans can be processed with little restriction. However, local funding for the other marketable commodities such as wheat and maize will not be treated as offshore funding and will need approval by the apex bank.

“Please note that local funding for the purchase of tobacco and cotton should be treated in a similar manner like offshore facilities. Facilities for other marketable commodities would require prior approval by the Reserve Bank,” the statement concluded.

Economist Allen Dube said, “This is a good move because we would have run into a situation where tobacco and cotton would be delivered and no money to buy it and lose on the intended revenue. So this was an amendment that needed to be done.” In a separate circular last Thursday the RBZ said, “In line with the Ultimate Beneficial Ownership (UBO) principle, authorised dealers shall not process third party country foreign payments.

“Accordingly, foreign payments shall only be made to the country from which the goods/services being invoiced are being imported.”

The bank said authorised dealers are required to thoroughly scrutinize all the supporting documentation submitted in support of foreign payments and satisfy themselves on the authenticity of such documentation so that it does not violate the above provision.

The bank noted that all authorised dealers shall not process acquittals documentation involving third party country payments.

Developmental economist Tinevimbo Shava said, “The issue of fuel is a critical one, especially at a time when we are facing a shortage of Jet A1 fuel and if we had restricted third party country payments when we use letters of credit to import the goods it was going to be disastrous.”

The clarity is due to the fact that there was some confusion on the extent of measures announced by the Government with regard to bank lending and so banks froze all manner of funding support to avoid any liability through defying the authorities.

This unprecedented move was “to minimise money creation of broad money that is prone to abuse for speculative purposes”, President Mnangagwa said in his statement. RBZ had only recently increased interest rates to 80 percent hoping to limit money supply growth.-The Herald