Zimbabwe takes drastic moves to restrict US dollar outflows
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E-mail Xinhua, May 5, 2016
Zimbabwe's central bank on Wednesday announced a package of drastic measures to retain the U.S. dollar, the country's main circulation currency, in the economy as the liquidity crunch bites.
The measures include imposing withdrawal limits, converting corporate export receipts, allocating funds to importers in priority sequence and introducing "bond notes" equivalent to U.S. dollars in value.
John Mangudya, Governor of Reserve Bank of Zimbabwe, the central bank, told a press briefing that starting Thursday, individuals will also be restricted in taking cash out of the country, with a maximum limit of 1,000 U.S. dollars or 1,000 euros in cash. The daily cash withdrawl limit from banks is also set at 1,000 U.S. dollars.
A foreign exchange priority list to guide banks in the distribution of foreign currency had been crafted, favoring net exporters who import raw materials and machinery, non-exporting importers of raw materials and machinery for value addition and import substitution, strategic imports such as basic foodstuffs, fuel, medicines, and payments for services not available in Zimbabwe.
At the bottom of the priority list are importers of goods or services readily available in Zimbabwe, capital remittances from disposal of local property, cash depositing clients in the retail and wholesale industry, and university and college fees for students already enrolled in courses abroad.
The governor added that 40 percent of all new foreign exchange receipts in U.S. dollars from the export of goods and services, including tobacco and gold sale proceeds, shall be converted by the central bank at the official exchange rate to South African rands and 10 percent to euros "in order to restore and promote the wide usage of currencies in the multicurrency basket."
After a hyper-inflation that crushed the local currency in 2009, Zimbabwe has been using multiple foreign currencies. Though the authorities have given eight other foreign currencies as legal tenders, the market is still dominated by the U.S. dollar.
But the country was hit by several shortages of the U.S. dollars in recent years, the latest one starting January this year.
The authorities said the use of the U.S. dollar had increased from 49 percent in 2009 to the current 95 percent.
Zimbabwe once faced a cash crisis around Christmas in 2014, with long queues seen in front of banks. But it resolved within weeks.
Mangudya said the current cash shortfall was caused by chronical trade deficits, a stronger U.S. dollar against world currencies, and a fall in commodity prices.
Zimbabwe relies heavily in the export of raw minerals such as platinum, chrome, goal, nickle, diamonds and agricultural products particularly tobacco and cotton to sustain its economy. It, however, imports most of the industrial and consumer goods from abroad.
The country's trade deficit has widened from an average of 400 million U.S. dollars 10 years ago to 2.5 billion U.S. dollars in 2015.
In another unpredicted move, Mangudya said the authorities will introduce bank notes, in denominations of 2, 5, 10, 20 dollars, backed by a 200-million-U.S.-dollar facility provided by Africa Export Import Bank (AFREXIM). The bank notes, however, stoke fresh fears that the authorities are on its way to introduce a new local currency.
Zimbabwe already introduced "bank coins", shortly after the cash crisis which occurred at the end of 2014, but the country's chief financial officials have in the past denied plans to introduce "notes" leading to the birth of a new local currency, citing the lack of sufficient gold reserves in the country.
"The above measures are expected to go a long way in easing the cash shortages in the economy whilst at the same time reducing import dependence through promoting local production and exports," Mangudya said.
Earlier, Finance Minister Patrick Chinamasa told the parliament that the cash crisis would be resolved, but called for patience and greater use of plastic money.
Zimbabwe's economy is facing tremendous downside pressure. In a statement issued Wednesday, the IMF said Zimbabwe's economic difficulties have deepened aggravated by a devastating drought, tight liquidity conditions and negative inflation.
"Unless the country takes bold reforms, the economic difficulties will continue in the medium term. Given the outlook for the global economy, growth is projected to remain below levels needed to ensure sustainable development and poverty reduction," the IMF said.
The IMF has projected Zimbabwe's growth for 2016 to remain flat at 1.5 percent due to weak growth in key mining and agriculture sectors.
Weighed down by a debt of more than 7 billion U.S. dollars, Zimbabwe has tabled plans to clear 1.8 billion dollars in arrears to the IMF, World Bank and African Development Bank this year to help unlock fresh funding from the multilateral institutions which suspended lending to Zimbabwe in the early 2000s.
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