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USD$1,7 Billion Sitting In Foreign Currency Accounts Not Circulating In The Economy – RBZ FIU

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US$1,7 billion is sitting in foreign currency accounts, which is not circulating in the economy.This was revealed to TechnoMag by the Reserve Bank Of Zimbabwe (RBZ).Permanent Secretary for Finance and Economic Development George Guvamatanga, said the challenges regarding inadequate amounts to meet requirements of imposters reflected an incomplete market in terms of financial intermediation. Mr Guvamatanga said the Reserve Bank of Zimbabwe (RBZ)’s Financial Intelligence Unit was looking into the situation, which he said created the challenge of crowding out those that genuinely deserve to benefit from the foreign currency auction.

He was speaking during a 2021 mid-term budget and economic performance review panel discussion.

Authorities were also aware, Mr Guvamatanga said, of firms that frequently seek forex from the auction yet other businesses of similar size and business models in fact generate hard currency and contribute to the auction system. “We are now questioning to say (why) if you have similar business models, similar size, and you are coming to the auction while your peer in the same industry, same market actually has some excess foreign currency to provide? Mr Guvamatanga said that the structural asymmetry was part of the reason why the country continues to face excessive demand for hard currency on the auction, which outstrips supply capacity.

Certainly authorities needed to deal with the problems or factors constraining lending by banks to productive sectors of the economy. In regional countries that include Zambia and Botswana, the loan to deposit ratio was as high as 80 percent while in Zimbabwe it was roughly 40 percent of banks’ total holdings.

One analyst said “ there was potential for significant upliftment of the country’s productive sectors and the economy in general if banks extended to productive sectors a reasonable chunk of their FCA holding.”

Local banks are sitting on more than US$1,7 billion in foreign currency deposits, with little forex being extended to starved productive sectors, a situation that piles pressure on  demand for foreign exchange on the auction system. This comes from indications that while the auction system is designed to work on a T3 (three day) settlement cycle, some beneficiaries get their funds after several weeks on end, with the backlog sometimes hitting as much as US$200 million. However, the auction system has been credited with fostering economic stability and growth, projected at 7,8 this year, as well as the current rapid fall in the rate of inflation, which fell to 56,37 percent (annualised) last month from 106,6 percent in June.

Mr Guvamatanga said “Some of the structural challenges that we are facing on the auction, is actually just a reflection of what I would call an incomplete market because if you are operating in any market, there is a source of liquidity that is provided by that market.”

He added “It also involves lending and borrowing by banks, but we have banks today, who are sitting on 50 percent of their total deposits, which they are not lending. So the ecosystem is  actually disrupted because we have US$1,7 billion sitting in foreign currency accounts, which is not circulating in the economy. “So if banks were lending that money, the companies who are currently coming to the auction would stop coming to the auction and that would actually complete the ecosystem,”

He said calls have been made that the Government needs to address delays in the settlement cycle for forex traded on the auction, but in fact it was the corporate world that needed to play ball.

“If (banks) start lending, just US$300 million out of that US$1,7 billion, it will stop quite a lot of players from going to the (auction) market. “But we are also aware that there are players who generate foreign currency, not banking it but coming to the auction market, and those we are dealing with one by one,” he said.

Ross Moyo

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