Central bank enhances measures for external capital flows

THE Reserve Bank of Zimbabwe (RBZ) is working on strengthening its legal, institutional and regulatory frameworks to effectively ring-fence foreign investments to enable investors to repatriate funds without difficulty.

This is further progress to the announcement made by RBZ governor Dr John Mangudya in the 2018 Monetary Policy Statement (MPS) after it was realised that foreign investors on the Zimbabwe Stock Exchange were struggling to repatriate dividend proceeds, due to a foreign currency squeeze.

Yesterday the RBZ deputy governor Dr Kupukile Mlambo (standing in the capacity of the governor) said foreign investors continued to face challenges when they want to repatriate funds from Zimbabwe.

“The challenge that our investors face is that legally they can take out their money but in practice you may not have foreign currency, so we need to find a balance between what we legally can do and find ways of ring-fencing foreign investment in such a way that when it needs to go out, it should go out,” he said while officiating at a Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI) event.

“The cornerstone that underpins the development of the above financial market factors is the legal and regulatory framework executed through effective institutional arrangements.

“The smooth operation of the financial markets is hinged on the legal and regulatory environment, which provides certainty of legal rights of claims of financial institutions and give predictability of fair enforcement.

“These frameworks and arrangements should ideally be up-to-date and backed by strong institutions with effective monitoring and enforcement mechanisms. And this is something that we are working on as Zimbabwe right now.”

To the extent that it is effectively implemented, ring-fencing foreign investments has the potential to enhance liquidity on the financial markets, which is critical for new investor inflows.

In February, through the 2018 monetary policy statement, Dr Mangudya said the central bank was enhancing the nostro stabilisation facilities by $400 million.

He said the enhanced nostro facilities would refine the operations of the Portfolio Investment Fund by ensuring that “all portfolio investment inflows are ring-fenced to meet portfolio investment outflows, which shall be processed by giving priority to capital before capital appreciation (profits) and dividends.

“This measure is necessitated to augment the current $5 million that has been provided in the Fund as seed capital and to further provide assurances to investors that Zimbabwe is open for business,” said Dr Mangudya at the time.