Zimbabwe financial sector faces collapse
ZIMBABWE’S financial services hovered on the verge of collapse this week as lenders and financial institutions curbed the use of Visa debit cards outside the country.
Yesterday, Standard Chartered announced that its clients would no longer be able to use their cards as banks passed the worsening effects of the cash crunch on to their clients.
The lender said it would still allow for special, pre-arranged use of Visa cards outside Zimbabwe, but depositors would have to apply first.
It said it would approve the applications “in line with the priority-list guidelines on external payments” issued by the central bank.
“We have cancelled the automatic use of your Visa debit cards outside Zimbabwe with immediate effect,” the Zimbabwean unit of Standard Chartered said.
The introduction of bond notes last year appeared to steady the liquidity crunch, but the past few weeks have seen a surge in the demand for cash and a decline in US dollar notes in circulation.
Last month, the Zimbabwe Medical Doctors Association warned that medical procedures in the country could be halted because of shortages of foreign currency to import key anaesthetic drugs.
“It is worsening, and crucial payments for offshore obligations are being affected. Some of our corporate clients are resorting to buying forex from the parallel market,” a finance manager told Business Report yesterday.
Artificial Most banks stopped issuing US dollars in cash machines this week, offering local bond notes as the only option for withdrawals from banking halls.
“The so-called 1:1 value for the bond notes against the US dollar is artificial, because, when under pressure to go outside the country, companies and individuals have to settle for a rate determined on the parallel market,”an informal trader in Harare said yesterday.
The debilitating foreign currency shortages in Zimbabwe could affect the country’s growth prospects this year.
The Confederation of Zimbabwe Industries said it was pushing the government to adopt the rand.
Economics professor Tony Hawkins said the imbalance between hard cash in circulation and electronically in the financial system was a worry for Zimbabwean companies.
Another economist, Johannes Kwangwari, said the central bank was once again facing challenges in allocating scarce foreign currency, charging that this was impacting business operations.
He cautioned that over-regulation of the currency market, worsened by crippled access to forex, would drag down the economy.
Econet Wireless, the biggest telecommunications company in Zimbabwe, is undertaking an offshore rights issue to raise $130 million (R1.73 billion) to pay off a maturing debt facility used to expand its network.
“All this (curbing of credit card usage and cash shortages from the banks) points to challenging times ahead,” Kwangwari said.
“And when the government tightly regulates the market, preventing companies from accessing forex on the informal markets, production will be hampered and offshore payment obligations affected.”