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Dr John Mangudya

Prosper Ndlovu, Business Editor
THE Reserve Bank of Zimbabwe (RBZ) has extended the bond notes export incentive scheme by $300 million under a standby liquidity support from the AfreximBank.

RBZ Governor Dr John Mangudya announced the new package yesterday in his 2017 mid-term monetary policy statement which also contains a cocktail of measures meant to bolster export-oriented production and overall economic growth.

He said Zimbabwe must produce and create exports, adding that foreign exchange must be earned and spent wisely.

“There is no substitute for this narrative as the country’s external position is already weakened by more than 16 years of economic and international isolation. We cannot further isolate ourselves by doing nothing and undermining the economy by perpetuating market indiscipline,” said the Governor.

“It is against this philosophy and building on the success of the 2.5 – 5 percent export incentive/subsidy scheme in securing and increasing the export of goods (by 14 percent) and services and diaspora remittance since May 2016, that the bank found it imperative to extend and enhance the export incentive scheme by $300 million under a standby liquidity support from Afreximbank.”

He said the standby liquidity support was separate from the $600 million nostro stabilisation facility, also secured from AfreximBank, and will be used to back the bond notes that are going to be issued to monetise the subsidy scheme.

“As like under the $200 million facility, the bank will release the bond notes into the market on a drip-feed basis,” said Dr Mangudya.

He said use of foreign exchange as a domestic currency in Zimbabwe in a dollarised or multi-currency system demands and dictates that the country adopts a robust export strategy similar to China’s “open-door” export strategy. In what he called the “export, die or subsidise” strategy, Dr Mangudya said securing foreign exchange was a critical factor of production especially under the context where foreign exchange is also a domestic currency.

The export incentive scheme (EIS) was introduced in May 2016.  Since then, cumulative foreign currency receipts amounted to $4.9 billion, four percent higher than the same period prior to the introduction of the scheme, said the Governor.

“This indicates a positive impact that EIS has had on foreign currency receipts, particularly from exports that went up by 14 percent. As at 30 June 2017, a total of $175 million had been paid out under the export incentive scheme in the form of bond notes against a payable amount of $187.7 million,” he said.

Dr Mangudya acknowledged the inefficient circulation of money in the economy due to cash shortages, saying the current stock of money in circulation was made up of bond coins ($25 million), bond notes ($175 million) and multi-currencies dominated by the US dollar at approximately $800 million, giving a total of around $1 billion.

“The inefficient circulation of money is significantly causing shortages of cash in the formal economy and the banks. The bank is concerned about this practice, which has crept into the economy, which can be attributable to a number of factors, chief among them being rent seeking behaviour, externalisation motives since the US dollar is a highly sought-after currency, corruption and lack of confidence, which is induced by indiscipline,” he said.

The Governor said the bank was putting measures to deal with this scourge of indiscipline, which requires national common purpose built on shared values to safeguard the country’s hard earned foreign exchange resources. He, however, noted that the root cause of excess demand for foreign exchange emanated mainly from increases in money supply as a result of greater spending by Government, money creation — loans and overdrafts — by banks.

Dr Mangudya said in order to increase exports the country needs to continuously develop strategies to support exporting entities so as to sustain the multi-currency system. He reported that the central bank has put in place a number of facilities to promote exports, tourism, production and the empowerment of students, youth, women and people with disabilities to the tune of $190 million.

“The uptake of these facilities which started at a slower rate has substantially improved to the extent that the gold development facility drawdowns had reached 75 percent by the end of June 2017, while that for horticulture, cross border, women and business linkages was at 25 percent utilisation level,” said Dr Mangudya.

Gold deliveries to Fidelity Printers and Refiners (FPR) hit 10 tonnes during the first half of 2017, recording a 3.9 percent growth compared to the same period last year. Indications are that gold deliveries would reach the targeted 25 tonnes by year-end.

Dr Mangudya said the stock of Treasury Bills and bonds as at June 30, 2017, amounted to $2.5 billion. The bulk of these were issued for expunging the banks’ legacy debt under the Reserve Bank Debt Assumption Act ($826.8 million), capitalisation of institutions where Government has interest ($262.7 million), Government programmes including drought-related expenditures ($531.2 million), ZAMCO ($568.3 million) and Government recurrent expenditure ($312 million).

The Governor said the carrying of foreign currency on person per exit from Zimbabwe has been reviewed to an equivalent of $2 000, saying those who needed more should seek prior authorisation from exchange control through normal banking channels.