Harare – Zimbabwe’s new measures to suspend lending by banks, hike taxes on foreign currency transactions and to choke liquidity by reducing broad money supply growth to 0 percent will slow down economic growth, result in further reduction of investment flows and cripple companies.
A foreign currency crunch, run-away inflation and sudden shifts in monetary policy have hammered Zimbabwe’s economy. Confidence in the banking sector has resultantly taken a knock as the local currency has nose-dived in value.
President Emerson Mnangagwa has sought to stem the economic decline after announcing new policy measures to deal with the run-away parallel market exchange rate as well as boosting demand for the local currency, which is increasingly being rejected within the economy.
His administration is adamant that Zimbabwe is not fully dollarising even as the business sector and opposition parties push for the Zimdollar to be shelved.
“The dramatic fall of the exchange rate stems from the introduction of the Zimdollar … it stems from a huge mismatch between supply and demand. It stems from corruption and the billions of Zimdollar being pummelled into the system from illegal deals,” said Tendai Biti, former finance minister and senior official in the Citizens Coalition for Change (CCC) opposition.
This followed Mnangagwa’s announcement at the weekend of new monetary measures that include hiking the tax for foreign currency withdrawal from ATMs from 5 cents to 2 percent, raising the electronic transfer tax on transactions settled in foreign currency from 2 percent to 4 percent. Third party foreign payments have also been stopped in addition to reduction of broad money supply growth to 0 percent.
Zimbabwe has also moved to compensate depositors who lost value when the southern African country switched over from a fully dollarised economy to the current dual currency in 2019 in a measure described as “not enough” to restore confidence by executives in the the business and banking sectors.
Retail outlets are now also allowed to price their goods using the willing-seller willing-buyer exchange rate used by banks and their clients.
Bankers have said that the suspension of lending services will cripple local companies who do not have liquidity to fund operations, while Biti highlighted that “it is blatantly unlawful to ban banks from lending” when “it is their core” business.
Analysts at brokerage firm, Morgan & Company said in a market intelligence note yesterday that “the new measures will likely trigger low levels of investor confidence given policy uncertainties”.
The higher taxes on foreign currency transactions will result in increased informalisation of the economy at a time “foreign participants” in the economy “have not been receiving their dues” of late.
In response to the new policies measures by Mnangagwa, the Zimbabwe National Chamber of Commerce (ZNCC) said yesterday that “government’s slow reaction to economic chaos which triggers such confrontational approach and, in the process, results in unintended consequences, is worsening the economic turmoil”.
“There is a complete loss of faith in local currency, and economic agents are desperately getting rid of their Zimbabwean dollar the very moment they earn it,” said the ZNCC in its response paper addressed to Zimbabwe’s Finance Ministry and the Reserve Bank of Zimbabwe.