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Dr Mangudya

THE slashing of interest rates from 18 to 12 percent is a commendable move by the Reserve Bank of Zimbabwe (RBZ).

This bold proposition not only excites different economic sectors but sets the tone for improved confidence in the banking sector. For a long time the cost of finance has been prohibitively high in Zimbabwe resulting in suppressed economic growth as vital economic sectors were starved of capital while those who borrowed suffocated under arrears and lost valuable assets through litigation. We applaud the RBZ Governor Dr John Mangudya for capping lending rates at 12 percent per annum from 18 percent with effect from April this year.

“With effect from 1 April 2017, all banking institutions are required to ensure that lending interest rates should not exceed 12 percent per annum and that bank charges that include application fees, facility fees and administration fee, should not exceed three percent,” said Dr Mangudya in his 2017 Monetary Policy Statement released on Wednesday.

We concur with Dr Mangudya that reduced lending rates are a launch pad for improved access to affordable credit, which is crucial in creating a flourishing economy. The financial services sector should also heed this call and provide funding to the productive sectors of the economy to enable industries to invest, create jobs and boost exports. Similarly, the reduction in bank charges as well as the downward review of cash withdrawal charges is set to entice a huge chunk of the unbanked population and depositors. This will no doubt promote use of formal banking channels, which is critical for financial inclusion.

The successful implementation of the bond notes facility is a plus for the RBZ, which to date has issued $94 million worth of notes against an aggregate value of the export incentive of $107 million. It is encouraging that this bonus scheme will be extended to the tourism sector and cotton growers. The mining sector and tobacco farmers and other value added exporters are already enjoying the export bonus and this is already stimulating production and exports.

We believe the $70 million nostro stabilisation has come at the right time in response to delays that banks were experiencing when processing offshore payments. This is expected to breathe life into companies who had raised concern over depletion of nostro reserves, which they said were threatening the viability of their businesses.

Dr Mangudya also announced the extension of the $200 million African Export-Import Bank (Afreximbank) Trade Debt-Backed Securities (Aftrades) facility by a further two years to expire in February 2019. The facility, which operates and functions as a window of last resort at the Reserve Bank for local banks, has been of great assistance in the bank’s mandate of maintaining financial sector stability and inclusive growth.

The scourge of continued illicit cash dealings and externalisation of the scarce foreign exchange as evidenced by the $206 million paid in DStv subscriptions through nostro accounts, should be condemned with the contempt it deserves.

Dr Mangudya also stressed the need to mobilise sufficient resources to pay farmers on time for produce deliveries and this cannot be over-emphasised.

Zimbabweans are also delighted by the increased support for the small scale gold mining sector, whose $20 million loan facility has been increased to $40 million. We believe this will enhance output and expand job opportunities for this crucial sector. The success of the RBZ’s measures is also evident in the increase of the banking sector profitability last year to $181 million, which translates to a 42 percent increase from $127 million in 2015.

We urge the apex bank to thoroughly deal with the externalisation problem and also combat money-laundering, tax evasion and transfer pricing as these challenges are tied closely to the prevailing cash crisis in the economy.

As Dr Mangudya said, we believe taking painful steps is necessary in turning around the country’s economy, which should be anchored on an export-led growth strategy. Zimbabweans cannot wait for the timely implementation of these policy measures as they complement the ease and cost of doing business reforms as enunciated in the fiscal policy statement.

We plead with stakeholders to support the central bank’s initiatives by playing their part towards restoring sanity in the banking sector.