Businesses under siege

Finance, Economic Development and Investment Promotion deputy minister David Mnangagwa revealed that banks and pension funds were failing to make long term investments.

BANKS are no longer providing long-term funding past 2025 when the multiple currencies regime ends, it has emerged.

In recent weeks, businesses have increased calls for the government to put legislation guaranteeing the usage of foreign currency, particularly the United States dollar post-2025.

This comes as the Zimbabwe dollar is being shunned in the market as it continues depreciating against major currencies such as the dollar.

Legally, Statutory Instrument 118A of 2022 allows the usage of foreign currency until end of 2025, which has limited businesses’ ability to make long term plans.

Speaking at the Zimbabwe Association of Pension Funds Principal Officers and Chairpersons Convention in Bulawayo last week, Finance, Economic Development and Investment Promotion deputy minister David Mnangagwa revealed that banks and pension funds were failing to make long term investments.

“You may recall that, for this to come up, it was through a similar engagement like this one          whereby the industry asked that we consider the use of the US$,” he said, in response to convention participants voicing their concerns over the expiry of the multi-currency regime.

“It’s not only the pensions industry, the banking industry too has raised this saying they are not able to lend beyond 2025 and all papers they are handling are short-term. What I can assure you is that the (Finance) minister (Mthuli Ncube) is seized with this issue, so the industry does not need to panic about this.”

According to central bank statistics, at the end of June, loans had shot up to ZWL$10,19 trillion from ZWL$1,29 trillion as at December 31, 2022.

The bank reported that the increase was largely attributed to an increase in foreign currency-denominated loans, which constituted 94% of the sector’s loan book. From these loans, 17,48% went to the agricultural sector, distribution (14,19%), manufacturing (12,24%), mining (11,78%), commercial (6,42%), financial (6,37%), mortgage (4,84%), construction (1,78%), transport (1,39%), and communication (1,17%).

AFC Commercial Bank Business Strategy head Joseph Mverecha said no country had ever sustained growth and industrialised without macroeconomic stability.

“One of the objectives is to expand the multi-currency regime to 2030. This creates certainty in the economy for financial intermediation. This ensures a stable economic environment which allows economic activity,” he said.

“Government should also build foreign currency reserves, for example, accumulate gold and FX (forex). We need to strengthen confidence building to restore public faith and trust in macroeconomic policy.”

Mverecha noted that authorities must mean what they pronounce and implement policy as pronounced, while also providing credible macroeconomic forecasts.

Government has on several occasions been criticised for policy inconsistencies, which has eroded confidence and dissuaded investment.

“It is important to arrive at a stable equilibrium exchange rate, which does not re-ignite parallel market drift so as to inspire confidence, certainty and continuity. The Zimbabwe dollar is on the edge of the universe (18,43% of money supply in June 2023) and rapidly retreating,” Mverecha said.

“There is need to consider the reduction in Zimdollar interest rates to occasion borrowing and lending, lower statutory reserves and ensure, pooled facility for smaller banks.”

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