RBZ governor John Mangudya
THE Reserve Bank of Zimbabwe (RBZ) would introduce bond notes, a token currency which will circulate within a basket of multiple currencies, at the end of October with US$75 million worth of the notes expected to be in circulation by the end of the year.
Presenting his mid-term monetary policy statement in Harare on Thursday, RBZ governor John Mangudya said the bank would start with US$2 and US$5 notes.
RBZ plans to introduce the bond notes in a bid to ease a shortage of bank notes blamed on a widening trade gap and the smuggling out of physical US dollars, Zimbabwe’s adopted currency since it dumped its inflation-ravaged currency in 2009.
‘Surrogate currency’
Announcement of the plans to introduce the notes — described by President Robert Mugabe as a surrogate currency — were met with stiff resistance, sparking demonstrations and panic withdrawals.
Former Vice-President Joice Mujuru has even taken the government to court, arguing that it “cannot introduce a bond note and cause it to masquerade as a form of currency. The law has only two options; either the Zimbabwean dollar or foreign currencies.”
But Mangudya insisted that the move was necessary to deal with a shortage of bank notes blamed on a widening trade gap and the smuggling out of physical US dollars, Zimbabwe’s adopted currency since it dumped its inflation-ravaged currency in 2009.
“You do not stop a good policy because a group of people does not like them,” he said.
“The Bank has heard and taken note of the public’s concerns, fear, anxiety and scepticism of bond notes which all boils down to the general lack of trust and confidence within the economy. The Bank is addressing the concerns by planning to introduce smaller denominations of bond notes of US$2 and US$5.”
Mangudya said the bond notes will only be issued as an incentive to exporters. Between May and September, exporters have earned $56 million in incentives, which will be paid out in the form of the token currency, central bank data shows.
“The bond notes will be gradually released into the economy in sympathy with export receipts through normal banking channels up to a maximum ceiling of the facility of US$200 million. The ceiling would be attained when total exports are around US$6 billion,” said Mangudya.
“At the rate at which the country is exporting we anticipate that bond notes equivalent to around US$75 million will be in the market by the end of December 2016.”
Mangudya reiterated that the introduction of the bond notes did not mark the return of a much-loathed local currency by stealth. He added that the central bank was pushing for the setting up of an independent board to oversee the issuance of the notes, to allay fears of money printing beyond the $200 million backed by an AfreximBank facility.
Diaspora incentive
In a bid to attract remittances which have been a key source of liquidity at a time foreign direct investment (FDI) to the cash strapped economy has been on the decline, Mangudya said the central bank would extend its export incentive to diaspora remittances.
“In view of the critical role of diaspora remittances in the economy and in order to enhance the remittance of such funds, the Bank shall be extending the export incentive scheme at a level of between 2,5-5 percent to diaspora remittances including any form of private unrequited transfers on funds remitted to Zimbabwe through normal banking channels with effect from 1st October 2016.”
In the half year period Zimbabwe diaspora remittances amounted to US$397 million, 13 percent lower than in the same period of 2015.
FDI, which dropped 23 percent to US$421 million in 2015, is seen further declining, the central bank said.
Ease of credit
To enhance the ease of securing offshore lines of credit, the central bank increased the threshold of external loans that do not need prior Exchange Control approval to US$20 million.
“With immediate effect we are increasing the limit of those loans that do not require central bank approval from US$10 million to US$20 million so that corporates and banks can organize credit without coming to the central bank and just advise the bank after contracting the loans.”
The governor said the central bank had also secured a US$215 million facility to stabilize depleting offshore accounts.
“In order to deal with the current delays in the processing of outgoing foreign payments by banks the Bank has managed to secure facilities in an amount of US$215 million from international finance institutions to deal with the outgoing foreign payments backlog. In addition, negotiations are at an advanced stage to raise US$330 million from regional sources to enhance production and improve the liquidity situation in the country.”
Mangudya said the banking sector had remained profitable, recording an aggregate net profit of US$68 million for the period ended 30 June 2016, from US$34 million in the corresponding period in 2015. Seventeen out of eighteen operating banking institutions recorded profits during the period ended 30 June 2016.
During the six months to June total banking sector deposits increased by 5.2 percent to US$5,9 billion from US$5,6 billion as at 31 December 2015 while loans and advances declined from US$4 billion as at 30 June 2015 to US$3,7 billion as a result of cautious and prudent lending by the banks.
As at June 30 ZAMCO a company established to buy bad loans by government had taken up US$528,.4 million worth of taken up NPL.
The industry average of NPLs has improved marginally to 10,05 percent as at 30 June 2016, from 10.82 percent as at 31 December 2015.
Thirteen of the country’s 19 banking institutions have met the June 2016 target of a 10 percent bad loan ratio while 5 others are already within the December 2016 target of 5 percent.
Mangudya said the uptake of electronic payment systems has been satisfactory, with total electronic payments having increased from US$4.=,1 billion in January 2016 to US$5,5 billion in July 2016. The Source/Staff Reporter