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US$1,5 billion circulating in black market, says RBZ

by Staff reporter
17 Oct 2021 at 09:08hrs | Views
FRESH evidence of plummeting confidence in Zimbabwe's banking sector has emerged, with central bank deputy chief Kuphukile Mlambo saying up to US$1,5 billion could be exchanging hands outside formal banking channels.

Mlambo, who spoke during the Zimbabwe National Chamber of Commerce (ZNCC)'s 2021 annual congress in Victoria Falls last week, said it was worrying that with a big United States dollar war chest, the country was struggling to meet its foreign currency requirements.

However, the US$1,5 billion was much higher than a figure of US$500 million recently disclosed in central bank internal papers as circulating outside banks.

"If it goes by the amount of foreign currency that we have in the country we shouldn't be having this crisis," Mlambo told the ZNCC congress.

"We have US$1,2 billion foreign exchange reserves; we have US$1,7 billion in domestic foreign currency accounts—money that is sitting at the banks and we believe that there is about US$1,5 billion that is circulating outside the formal system.

"So, all in all we really have enough foreign currency as a country," he added.

The RBZ chief said the country's foreign payments ranged between US$5 billion and US$6 billion per annum, against earnings of between US$6 billion and US$7 billion.

This translates into about US$1 billion surplus.

"Generally, we are running about a US$1 billion surplus," he said.

"Clearly, we shouldn't have these kinds of problems that we are having yet we witness that our economy continues to suffer volatility on the parallel market."

Mlambo spoke as a massive onslaught against  firms and individuals suspected of dabbling on the parallel market kicked off last week.

About one dozen firms were netted by police under a campaign code named ‘Operation Pangolin'.

Separately, the Financial Intelligence Unit and the Zimbabwe Revenue Authority were raiding firms and handing over suspects to law enforcement agencies after authorities panicked as parallel market rates ran amok.

In a new paper, the RBZ last week said that US$500 million could be circulating outside the banking system during a time when industries were struggling to raise billions required to improve production.

The paper said the amount  was far higher than US$300 million currently available for transactions in Zimbabwe's financial system.

The data was contained in a report titled "Update on Recent Economic Developments and the Outlook", which demonstrated how banks have lost the battle to attract massive United States dollar stocks being kept outside the financial system by edgy consumers.

Most of these funds have ended up lubricating a stubborn parallel market, which has been behind recent inflationary surges.

Mlambo said the central bank had allotted US$2 billion to bidders through the foreign auction system since its inception in June last year.

He said the RBZ was worried that while it looked like enough foreign currency was being injected into companies, foreign currency shortages continued.

"If you look at the interbank market in 2021, we have allocated US$924 million. If you add what's going on in the interbank market and the main auction, there's sufficient money that is going to the market," he said.

"I really want you to prove me wrong, the industry in this country does not need more than US$40 million a week to operate.

"I am not talking about fuel because fuel is allocated separately using lines of credit."

Zimbabwe's banking sector has paid the price of waning market confidence since the 2004/2005 financial crisis when banks collapsed under the weight of a corporate governance rot and financial mismanagement that triggered a flight to safe by depositors.

Confidence continues to be hammered by operators' reluctance to pay interest on deposit, while charging punitive fees on accounts.

This strategy has attracted the RBZ's concern.

In August, the RBZ encouraged banks to begin paying interests on deposits, after negotiations with the Bankers Association of Zimbabwe.

Much of the foreign currency circulating outside the banking system has been channelled into a thriving black market which has recently dominated the foreign exchange market and precipitated rocketing prices.

Source - The Standard
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