SDRs war chest to bolster reserves

THE nearly US$1 billion special drawing rights (SDRs), which Zimbabwe received from the International Monetary Fund (IMF), will bolster the country's foreign currency reserves and  capacity to respond to emergencies  if the need arises, the Reserve Bank of Zimbabwe (RBZ) said.

RBZ Governor  Dr John Mangudya and Finance and Economic Development Minister Mthuli Ncube issued a joint statement last month on how the SDRs will be used by Zimbabwe, including strengthening the country's reserves position.

The World bank estimated Zimbabwe's reserves well below US$100 million in 2020, but the country has in the past achieved much healthier reserves forex positions, the highest being US$887 million in 1995.

Zimbabwe is one of the IMF's 190 member countries that received allocations under the multilateral lender's US$650 billion SDR global bailout to shore up domestic reserves, stimulate growth and strengthen countries' response measures to counter the negative impact of Covid-19.

Foreign exchange reserves (also called forex reserves or FX reserves) are cash and other reserve assets such as gold held by a central bank or other monetary authority that are primarily available to balance payments of the country, influence the foreign exchange rate of its currency, and to maintain confidence in financial markets.

Reserves are held in one or more reserve currencies, nowadays mostly the United States dollar. RBZ Governor Dr John Mangudya said the disbursement from the IMF would supplement ongoing efforts to grow and stabilise the economy.

"This money is supplementary to our own efforts; we do not look at the SDRs in isolation. Right now, we have US$1,7 billion with the banks (in the form of foreign currency accounts).

"Common sense tells us that we need to also use what is locally available and leverage on the money from the IMF as a quantum leap to go forward.

"So, we should see that money, more, as a reserve or boosting our reserves in the international account held at the IMF, which will be used for the purpose that we said we will use it for," he said.

The bank said it would roll out measures to give local banks comfort and the confidence to extend US dollar loans to key sectors of the economy from the FCA deposits currently lying idle, after banks took extra caution on lending hard currency.

The central bank chief said reserves were like capital and Zimbabwe, like many other countries globally, required reserves for a fall back position to cover critical obligations when it does not have enough resources.

Both the monetary and fiscal authorities are on record saying Zimbabwe will not physically distribute its SDRs to support the private sector, but guarantee reasonably priced US dollar loans to the sector.

Areas targeted for support include tourism, mining, horticulture, development of irrigation systems, establishment of gold processing centres and supporting key value chains in manufacturing.

Further, the funds will also be deployed to support social services like health (including procuring vaccines), education and supporting vulnerable groups as well as financing key infrastructure like roads and hospitals.

Dr Mangudya said Zimbabwe's economy was on course to achieve the projected growth of 7,8 percent after the bumper harvest this year, decent commodity prices and massive public construction across the country.

The bank also said it expects inflation to maintain a downward trajectory, albeit at a slower pace, although it revised upwards its year end target to between 35 and 53 percent from 23-35 percent initially forecasted.