The ManicaPost
Kudzanai Gerede Business Correspondent
THE precarious state of the country’s nostro accounts remains one of the major albatrosses regressing economic improvement across the entire economic value chain and analysts have applauded the latest Monetary Policy Statement for taking a deliberate inclination towards stabilisation of external accounts for the smooth settlement of foreign payments by the local banks.
Nostro accounts are foreign held accounts of local banks in foreign currency which are frequently used to facilitate foreign exchange and trade transactions.
Since the cash shortages started biting as far back as late 2015 local banks have heavily relied on nostro accounts, importing cash to meet local cash demand and the devastating effects of this has been the depletion of the country’s foreign reserves which is currently posing a challenge for local business as banks are now struggling to settle foreign payments of various imported commodities.
The mining and pharmaceutical sub-sectors which require a substantial amount of imported supplies that are not locally available have been the worst affected by delays in foreign payments to suppliers.
The depletion of foreign currency reserves has also affected various other economic players which have prompted the Central Bank to raise a red flag for local banks to comply to the foreign exchange priority list guidelines for prudent distribution of scarce foreign currency on priority items like fuel, electricity and grain following a catastrophic agricultural season last year.
The economy has been running on a series of successive annual trade deficits owing to weak productive levels across the entire economic spectrum and the ability to curb foreign currency leakages has been compromised by the fact that the country’s highly informal economy trades the US dollar currency outside the formal banking channels.
However, the Monetary Policy Statement has been hailed for positively oscillating between consolidating and instilling discipline in distribution of foreign exchange among competing needs of the country on one end while encouraging production and exports augmentation for foreign currency generation on the other end. This should nourish nostro accounts.
Presenting the 2017 Monetary Policy Statement in Harare last week, Reserve Bank of Zimbabwe Governor, Dr John Mangudya, said the Central Bank had put in place US$70 million nostro stabilisation facility in its quest to ease pressure on local banks.
“The Bank (RBZ) has put in place a US$70 million nostro stabilisation facility to deal with the delays in processing of outgoing payments by banks. It will also put measures to promote efficiency and discipline in utilisation of foreign currency by ensuring that banks comply with the foreign exchange priority guidelines,” he said.
He called for discipline among local banks on distribution of foreign exchange on productive import items as the first step to dampen propensity for frivolous import substances.
For example during the second half of last year, the Reserve Bank noted that card transactions and DSTV payments which required pre-funding of nostros consumed the second highest foreign exchange after fuel at a time local industry was held at ransom by delays in external raw material payments on account of foreign currency scarcity.
“A substantial amount of the US$206,7 million for card and DSTV transactions paid through the nostro accounts between July-December 2016 should have been settled locally and thus preserving foreign exchange for raw materials and other foreign payments that include education.
“Spending more foreign exchange on DSTV subscriptions than on raw materials to produce cooking oil for example, is not only counterproductive but also illogical,” said Dr Mangudya.
However, the Central Bank also weighed various options to scale production by stimulating sub- sectors which have potential for quick returns to feed the country’s nostro accounts through promoting exports in the horticulture and gold sectors by revamping the horticulture finance facility and enhancing the gold development facility from US$20 million to US$40 million respectively. This was also shared by Buy Zimbabwe economist, Mr Kipson Gundani, who said the Monetary Policy Statement despite having limited powers to boost nostros overnight, its ability to stimulate production in the narrow range of exports items currently produced in the country was commendable.
“The issue of depleted nostros will live with us for the near future,” he stressed, while raising a case for the expansion of the country’s export base. As a way of nourishing our nostros, we need to focus on the export sector, but unfortunately our export base is very lean. We currently have five commodities dominating our exports, so the whole idea of incentivising our mineral export products by the Reserve Bank is not an overnight success. We need to start exporting manufactured goods. The unfortunate part is that there are only limited ways of nourishing our nostro accounts. Much of it is dependent on external factors for instance the issue of Diaspora remittances, there is nothing much we can do locally to increase sustainable Diaspora remittances because that will mainly depend on external factors,” he added.
The Central Bank has as of last year incentivised Diaspora remittances as a way of boosting foreign currency inflows at a time foreign direct investment was very low but this has been dampened by external factors arising from global economic developments.
Total remittances declined by 17,9 percent in 2016 from US$1 917,7 million received in 2015 to US$1 574,0 million in 2016. He said the firming US dollar being used in the country against major currencies where the Zimbabwean Diasporan market resides has discouraged inflows into the country. This has been coupled by the informal channels remittances trickle into the economy which is unaccounted for.
“Another way we can try to stabilise our nostros is to do it from the reverse side to control the biggest drainers of our foreign currency reserves, thus manage and discourage unproductive use of our foreign currency. That way we ensure we relieve pressure on our nostros,” he said.
The Monetary Policy Statement also spoke to the need for affordable capital by directing an interest rate cap of a maximum of 12 percent per annum for local lenders in a bid to ease the cost of borrowing most distressed companies in need of capitalisation.
