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John Mangudya

Prosper Ndlovu, Business Editor
DEPLETING nostro reserves have induced a strain in the economy with local companies reporting challenges in making payments to foreign suppliers of goods and services.

With the persistent cash shortages in the economy, a number of banks are reportedly failing to meet their international payment obligations.

Experts warn that unless the trend is contained it could frustrate efficient industry operations and further cripple the economy.

Econet Wireless Zimbabwe has raised the red flag citing the difficult economic environment that saw its total revenue for the half year ended 31 August 2016 nosedive by 6.7 percent to $301 million from $323 million.

“The depletion of the country’s foreign currency reserves, evidenced by a recurrent balance of payments deficit, has made it difficult for all companies to make payments to foreign suppliers of goods and services,” Econet board chairman Dr James Myers said.

“As a result we have been unable to make certain debt repayments on time, notwithstanding that cash was available in our local bank accounts.”

He warned the situation was likely to persist unless appropriate measures were taken. Several companies rely on imported raw materials in their operations, which contribute to the high import bill. Since 2009 Zimbabwe has maintained average trade deficits of about $3 billion with current account balances as a percent of GDP averaging -22.5 percent, well over the red flag level of negative five percent. Experts say these levels of deficits are not sustainable for a dollarised economy.

In the meantime Dr Myers revealed that the diversified telecommunications firm was engaging its lenders and would continue to explore mutually acceptable solutions. The situation has seen firms failing to get their products on time forcing some to engage foreign banks who reportedly charge up to 10 percent premiums for any payment.

A local company executive who requested anonymity said: “Nostro accounts integrate an economy with the international finance system. With depleting foreign exchange reserves it means companies cannot efficiently import critical raw materials on time and this cripples operations,” said the executive.

Recently the Government had to move in to contain a potentially volatile fuel shortage following reports that oil companies were failing to access foreign currency to pay for the importation of fuel as their nostro accounts were empty. A nostro account refers to an account that a bank holds in foreign currency in another bank often used to facilitate foreign exchange and international trade transactions.

Coal miner Makomo Resources has indicated that its operations were under threat as its fuel suppliers were demanding cash upfront on all transactions.

Of late the RBZ has been forced to revise upwards the threshold of nostro accounts to 10 percent from the previous five percent. However, surveys have shown that the liquidity trends from 2009 to April 216 indicate that cash balances on the country’s nostro accounts have been depleted over time. For example, a study on Zimbabwe’s macro-economic stability and policy options (August 2016) indicates that the country’s nostro accounts, which held about $424 million in 2009, have dropped to less than $150 million.

“As of April 2016 hard cash balances comprising notes and coins and nostro accounts were estimated at six percent of banking deposits. Notes and coins alone were three percent of total deposits while nostro accounts were also three percent of deposits,” reads part of the survey. “What this means is that as at April 2016 there was slightly over $100 million cash in the banking system available to service over $4 billion of deposits. Thus at that date there were over $4 billion of deposits that were real time gross settlement (RTGS) balances not matched by available hard cash.”

In his mid-term monetary policy statement presented in September 2016, RBZ Governor Dr John Mangudya reported that for the period January to 30 June 2016, banks processed, on a cash flow basis, total outgoing payments amounting to $2.7 billion, which represents a 24 percent decline from $3.5 billion for the same period in 2015.

He noted that all categories of outgoing foreign payments experienced decreases, a trend he attributed to the limited foreign exchange reserves within the economy as well as the positive effect of the import compression policies, which promote the importation of critical goods and services not available on the local market.

The apex bank had hoped to secure $545 million in nostro stabilisation facilities from external financers to deal with current delays in the processing of outgoing payments by banks.