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Pressure mounts over Zimbabwe currency regime

by Staff reporter
17 Jun 2020 at 06:59hrs | Views
PRESSURE is again building on the central bank over its currency regime, as RioZim warns it can no longer sustain operations due to payment delays and the fixed exchange rate, while the Chamber of Mines pleads for the lifting of a 30-day limit on holding forex.

RioZim, the country's largest gold miner, said in a statement yesterday that it was owed US$2,46 million and Z$65 million due to payment delays by Fidelity Printers and Refiners, Reserve Bank of Zimbabwe (RBZ)'s gold buyer.

RBZ recently increased the proportion of forex earnings that a miner can keep from 55% to 70%. The remaining 30% of export sales is sold at the official rate.

However, that exchange rate has been fixed at 25:1 since late March, while rates on the parallel market have fallen, eroding value. Miners such as RioZim have long campaigned to keep 100% of their earnings.

"The impact of this situation on the operations of the company has been that the company is no longer able to meet its operational expenditure requirements considering that the company is expected to pay for electricity and fuel in US dollar along with almost all its consumables and spares," RioZim says.

By the company's calculations, the exchange rate rules and erosion of the Zimdollar component meant that it was only getting 80% of the value of its gold.

The company has, over the past two years, twice suspended operations to protest payment delays and the retention regulations. The company runs the Dalny, Renco and Cam and Motor gold mines, plus Murowa Diamonds.

RioZim's sentiment contrasted sharply with those of smaller rival Caledonia, which doubled earnings at its Blanket Mine in the first quarter and forecast higher output this year.

Power cuts slashed gold output at RioZim by 7% in 2019 and by 41% in the first quarter of March.

RBZ on the spot

As the exchange rate crisis worsens, RBZ's management of the currency is coming under increased scrutiny.

The Chamber of Mines has written to RBZ to reconsider its recent decision to reinstate a 30day limit on holding foreign currency in miners' accounts. The regulations compel exporters to bring in unused forex within 30 days.

RBZ temporarily suspended the requirement on March 30 as part of efforts to free up the market in response to COVID-19. But the central bank plans to reinstate it from July 1.

The move will affect miners' ability to fund operations, the Chamber of Mines said in a June 9 letter.

"Mining companies are appealing to you to reconsider the removal of the 30-day compulsory liquidation of un-utilised export earnings to provide mining companies with capacity to meet their operational requirements as well as funding their projects whose cycles exceed 30 days," the chamber said.

Zimbabwe generated US$2,91 billion in mineral exports in 2019, 55,2% of total exports, but output is expected to fall this year due to a combination of COVID-19, foreign exchange shortages and power outages.

The Chamber of Mines has warned of a 60% dip in mineral output due to the coronavirus, estimating earnings losses of US$400 million.

Source - newZWire