‘RBZ is interfering in firms’ cash flow affairs’

THE Reserve Bank of Zimbabwe (RBZ) is being accused of “interfering” in the cash flow management of companies following pronouncements asserting that companies should not seek foreign currency from the interbank market before exhausting balances in their foreign currency accounts (FCAs) to meet external invoice obligations.

Earlier this week, RBZ Governor Dr John Mushayavanhu, told this publication in an interview that there was enough forex on the market to meet the external payment needs of importers with genuine external invoices.

He further supported his point saying most of the companies already had foreign currency balances obtained from their forex-denominated domestic sales in an economy that is now 80 percent dollarised.

The balance of the transactions is being carried out in local currency.

However, captains of industry are on record saying access to forex on the interbank market for key imports remains a huge challenge.

Importers still struggle to obtain forex on the interbank market despite Zimbabwe’s banking sector sitting on roughly US$3 billion in foreign currency deposits.

In 2023, Zimbabwe earned US$11 billion in foreign currency, better than several countries in the region outside of South Africa, but its equitable and efficient distribution among deserving economic agents remains a big challenge.

Some firms are reportedly stuck with significant amounts of the new currency, the Zimbabwe Gold (ZiG), which they cannot utilise to import critical raw materials.

Notably, such a scenario presents potential hurdles against efforts by authorities to drive universal acceptance of the new currency across the economy and eventually have a mono (domestic) currency.

Zimbabwe currently has a dual monetary regime, comprising mainly the US dollar and ZiG, which runs until 2030.

According to the central bank, the Southern African country has US$80 million worth of ZiG backed by roughly US$300 million worth of precious metals (mainly gold) and foreign currency reserves. The Southern African country switched to the ZiG amid sustained volatility of the previous local currency, which was being dogged by inflation and exchange rate volatility.

But certain pockets of Zimbabwe’s economy, both formal and informal remain reluctant to transact in the domestic unit due to the hangover of issues that haunted the inflation-weary previous domestic currency, which was eventually scrapped and replaced with ZiG in April this year.

Dr Mushayavanhu said there was enough forex on the interbank market for manufacturers with genuine external payment invoices, adding the challenge was that some importers wanted to buy hard currency on the interbank even if they had enough balances in the foreign currency accounts (FCAs).

However, market intelligence shows that the interbank market remains largely a buyer’s market with few to no sellers outside of the central bank, which has been supplying the market from the 25 percent surrender, which remains largely inadequate to satisfy the market.

“Our currency, ZiG, is more than three times covered by reserves and these reserves comprise gold and US dollar cash balances. The US dollars in cash and balances that we have got is more than enough to cover the currency in circulation. So, if someone has a genuine import that they need to be paid for, they can go to their bank and we will be able to meet it.

“What we noticed is a situation where someone has got money in their FCA, which is enough to meet the invoice, which they want to pay, but they do not want to use the money that is in their FCA account, they want to use ZiG.

“We must understand that ZiG is operating interchangeably with the US dollar, we are in a multicurrency regime. So, you cannot say that if you are a manufacturer, all the turnover that you have made in ZiG you want to convert into US dollars when in fact 20 percent of the currency in circulation is ZiG and 80 percent is US dollars.

“So, if you have exhausted the US dollars that you have in your FCA account and you have a genuine invoice that you want to be paid, we will pay it,” Mushayavanhu said.

Asked to further explain if the demand for forex by certain entities who may already have balances in the FCAs was not determined by the fact that their obligations may be more than the amount they already hold, Mushayavanhu said: “Yes, if they have obligations that are higher we will make available the (foreign) currency.”

But business leaders are on record saying access to forex on the interbank has not been easy, especially in instances where one already has a US dollar balance in their account, even if their obligations may be higher while also arguing companies should be allowed the freedom to utilise their local currency holdings the way they wish.

No comment could be obtained from the Confederation of Zimbabwe Industries (CZI) president Kurai Matsheza yesterday, but he confirmed in a recent interview with this publication that access to forex on the interbank market remained a challenge.

As a result, he said the country’s most powerful industrial lobby group had engaged authorities to discuss ways to improve access to foreign currency on the interbank in the hope this would drive universal ZiG acceptance and enhance its functionality as a medium of exchange across the economy.

In an interview, Zimbabwe National Chamber of Commerce (ZNCC) chief executive, Takunda Mugaga, said the pronouncements of the central bank did not fully meet the dictates of free enterprise.

“For example, if I need a mortgage loan but have some money in my bank account, that should improve my credibility as a credit-worthy customer. No bank should deny me a mortgage loan on the basis that I have some funds in my account and I can buy the house for cash.

“I do not think it would be good (for RBZ to say what they are saying) because once you start taking a position like that you are creating informality where people will not bank even if they have the (forex) money. How will they (RBZ) separate between those with forex but do not bank and those who need more but banked what they generated?

“Such a position creates informality in the financial services sector. That is an indirect way of financial repression by the central bank. Whether one wants to import or not, it’s not the role of the authorities to tell you what you need and why you need the money; that would be interfering with market realities.

“If I have the money and want to withdraw it, I should be allowed to do so because I know what I want to use the money for. The authorities must not dictate when I can or cannot withdraw or use my money,” Mugaga said.

Economist and Small Enterprises Association of Zimbabwe (SMEAZ) chief executive, Farai Mutambanengwe, weighed in saying individual companies should be allowed the freedom to manage their cash flows the way they please.

“Right now the economy is dollarising, but people have to manage their cash flows one way or another. So, you will have expenses that you need to pay in US dollars. It does not necessarily matter because you have a balance in the FCA so you do not need US dollars.

“And also, because if I have US dollars and have got ZiG balances, the ZiG part of it I must also utilise somehow. If I have a US dollar balance and I cannot utilise the ZiG, obviously, it does not make sense anymore.

“At the end of the day, if someone is trying to pay for a foreign invoice, it is not up to the Reserve Bank to decide to say no ‘use this money for this or use that money for that’, because now they are getting into people’s cashflow management,” Mutambanengwe said.

He noted presently, several economic agents were reluctant to transact in the new currency because of reasons around the limitations in terms of how and when they can utilise the domestic currency.

“Even the fact that locally, I have to go and buy things like fuel and so forth in hard currency, so you cannot expect that I must have a zero balance on the US dollar side,” he added.-ebusinesswekly