Sanctions weighing on Zimbabwe banking sector

ILLEGAL sanctions imposed on Zimbabwe by western countries, led by Britain and America, have had a detrimental impact on the country's financial services sector as the embargo has seen the number of correspondent banks fall from a high of 100 to only a handful, a senior Government official said.

Prior to the imposition of the economic embargoes by the West under the Zimbabwe Democracy and Economic Recovery Act (ZIDERA), Zimbabwe had 105 correspondent banks. International banks have in the past two decades been de-risking by withdrawing correspondent banking relationships to avoid the backlash from the US.

Because of ZIDERA, no commercial bank in Zimbabwe, or any other Zimbabwean company can access and structure any financial deal with any US company, including big banks and multilateral lenders where Washington has a standing order for its representatives to block any vote for financial support to Harare.

Any global company or financial institution that violates the provisions of the US heinous sanctions regime on Zimbabwe faces severe penalties.

A correspondent bank refers to a financial institution that provides services to another one—usually in another country. It acts as an intermediary or agent, facilitating wire transfers, conducting business transactions, accepting deposits, and gathering documents on behalf of another bank

This, Finance and Economic Development Deputy Minister Clemence Chiduwa said last week, has created scope for the Government to continue and be persistent about the re-engagement process, which has gathered significant steam since the Second Republic came into power in 2017.

He said the Government could not afford to relax its re-engagement efforts as this would have potentially far-reaching consequences on the economy.

Although he did not shed more light on the remaining correspondent banks, it is understood only a few large banks still have correspondent relationships, a scenario that could put the country in an invidious position in the event they decide to de-risk as well under pressure from western powers that have sanctioned Zimbabwe.

"We are now left with only (few) intermediary banks, which can be very costly for the country. If these banks decide to leave us, it will negatively affect businesses so we will continue with re-engagement," he said responding to questions at the just-ended Fourth Zimbabwe Annual Multi-Stakeholder Debt Conference in Bulawayo hosted by the African Forum and Network on Debt and Development (AFRODAD) and Zimbabwe Coalition on Debt and Development (ZIMCODD).

"Before the coming in of ZIDERA, Zimbabwe had more than 105 corresponding banks, and now we have (a few).

" If we continue on that path where as a country we have limited intermediary banks, it is a huge cost to our investors. I think engagement should continue, both locally and internationally and our focus as the Ministry of Finance has been mainly on financial and economic re-engagement," he said.

ZIDERA was promulgated by the US in 2001 to punish Zimbabwe for repossessing land seized from its people by the white minority during the colonial period and redistributing it to the landless majority. Deputy Minister Chiduwa further explained that as long ZIDERA was tied to the land issue, the re-engagement efforts would also take time as the Government would not compromise on the land redistribution initiative which started over two decades ago.

 "One of the reasons why Zimbabwe was sanctioned was because of the land issue and as a country the land issue is a done deal, there is no going back.

"But as long as ZIDERA is tied to the land, it means we may not immediately get to that stage where we reach total engagement because we are not going to change our position on that.

"I don't know if the ZIDERA is amended to remove the issue of land, or else the re-engagements are going to take a long time," he said.

He added despite these challenges, there were already positives noted, a sign of thawing relations with the International Monetary Fund (IMF) willing to consider Zimbabwe on agriculture and drought mitigation measures.

"We are seeing that our relations are thawing and we are going to get that breakthrough we need," said Deputy Minister Chiduwa.