RBZ clears US$200m auction forex backlog

The Reserve Bank of Zimbabwe (RBZ) says it has cleared the nearly US$200 million ring-fenced foreign currency backlog on the auction system.

Governor, Dr John Mangudya said in an interview that the apex bank was now working to ensure it is current on all allotted fresh bids.

The backlog accumulated from bids allotted on the auction but which the bank could not fund due to forex shortage, which negatively affected beneficiary entities.

But Confederation of Zimbabwe Industries (CZI) president, Kurai Matsheza, said although the RBZ had cleared the ring-fenced amount, some firms still had backlogs going back to December last year.

Dr Mangudya said there had been "a lot of progress" on efforts to clear all the allotted outstanding bids on the bank's weekly auction system.

The backlog, he said, was also attributable to malpractices by certain entities that were sponsoring multiple bids under the auction system.

Earlier in October last year, the bank committed to clear the backlog of foreign exchange auction allotments, in line with Monetary Policy Committee (MPC) resolutions.

"All the balances, which were there before have been cleared, we are now working to ensure that we are current in terms of the forex auction laws," Dr Mangudya said recently.

Ordinarily, the auction system is designed to operate on a T+3 cycle, meaning bids must be settled from the third day after approval and must be funded within a fortnight.

Smooth functioning of the auction, introduced in June 2020 has disbursed over US$2 billion for key imports and is critical for macro-economic stability.

This should  however, also be anchored by a stable exchange rate and inflation, which has not been the case for much of the previous year.

Mr Matsheza said delays in settling allotted bids negatively impacted companies, which would have released the Zimbabwe dollar liquidity or working capital to intermediary banks.

"When you bid at the auction system, that amount in Zimbabwe dollars is no longer available for working capital, so that is one challenge.

"But also in terms of delays to allocations means you will also not be able to get what you had applied the money for, it may be raw materials or capital equipment," he said.

The Government last year said it would provide funding to clear the ring-fenced backlog of foreign exchange auction allotments through the central bank.

Shortage of foreign currency on the formal market has been partly blamed for forcing importers to the parallel market, which fuelled exchange rate volatility.

This in-turn exerted pressure on inflation, which peaked at a post dollarisation high of 837,5 percent in 2020, before falling to a two-year low of 50,6 percent in June last year.

Zimbabwe seemed to head towards a relapse into runaway inflation in the last few months, as the disparity between the official and open market exchange rate grew.

As a result, while authorities' higher revised year end inflation target was 58 percent, the rate closed the year at 60 percent amid exchange pressure on prices.

At its peak, annual inflation in Zimbabwe reached 500 billion percent, in July 2008, according to the International Monetary Fund (IMF).

Zimbabwe has faced a shortage of currency since 2016, which forced the country to abandon in 2019 the US dollar monetary regime it adopted in 2009.