Tawanda Musarurwa and Kudakwashe Mhundwa
The Reserve Bank of Zimbabwe (RBZ) is seeking a $500 million facility to cover the foreign currency gap that will widen when the 2017 tobacco marketing season closes.
Tobacco is Zimbabwe’s top foreign currency earner, accounting for at least a third of the country’s total foreign currency earnings. Speaking on the sidelines of an Economic Symposium hosted by the University of Zimbabwe (UZ), central bank governor Dr John Mangudya said foreign currency was particularly critical insofar as a number of companies in the productive sector had been revived and hence required forex for raw materials.
“There is usually a dry spell between end of August and beginning of March next year, it’s common knowledge. To this extent we are looking for facilities to ensure that we have enough foreign currency to see us through.
“This is the most difficult period of time because we have revived some companies, they need feed stock, they need raw materials, therefore foreign currency becomes critical,” said the governor. “We are negotiating for a facility to the tune of $500 million for that position, because tobacco gave us about $500 million.
The local tobacco selling season is currently winding down, with the Tobacco Industry and Marketing Board (TIMB) last week announcing that beginning this week, auction sales for flue-cured tobacco would be reduced to only two days per week until the close of the marketing season.
The date for this year’s marketing season is yet to be announced, although traditionally the tobacco selling season runs for 90 days. The RBZ governor told the Symposium that Zimbabwe currently has around $1,5 billion in Real-Time Gross Settlement (RTGS) balances (otherwise known as “usable dollars”, hence should have 40 percent (or $600 million) of that amount as foreign currency in nostro accounts.
But currently, the country has around $350 million in its nostro accounts, against the ideal target of $600 million, which was resulting in the cash shortages and fuelling cash premiums on the parallel market.
UZ Economics professor Dr Pheneas Kadenge said the problem facing Zimbabwe is not one of cash shortages per se, but one of constrained output. “We are not in a cash crisis, but a crisis of production,” he said.
According to the central bank, Zimbabwe needs to boost its manufacturing output and exports in order to earn more foreign currency. In this respect, the bank introduced the 5 percent export incentive scheme last year to incentivise the country’s exporters.
Industry has, however, since urged the monetary authorities to increase the incentive to between 10 percent and 15 percent.