RBZ ‘scraps’ surrender on selected USD sales

LOCAL firms with significant US dollar borrowings have been handed some timely relief after the central bank scrapped statutory surrender requirements on receipts from domestic sales.

The new provisions, however, only apply to grain millers, regardless of affiliation or status, and corporations with US dollar loans.

Many Zimbabwean companies started taking or converting loans into US dollar debt after the central bank hiked the benchmark policy rate from 80 to 200 percent to stymie borrowing for speculative reasons.

The bank policy rate, which set the minimum interest rates charged by commercial banks and made local currency loans expensive, has since been reduced to 140 percent.

Notably though, Treasury recently threatened an even steeper hike following the resurge of exchange rate volatility.

Authorities hiked lending rates to record highs last year, accusing speculative borrowers of using cheaper money to perpetrate attacks on THE Zimbabwe dollar, which drove inflation.

In an environment characterised by local currency volatility, high inflation and limited access to forex, domestic US dollar sales provided some respite in terms of US dollar funding for key imports.

The scrapping of liquidations (surrender requirement), at the official exchange rate, comes as the central bank has scaled down allocations for key imports at the weekly foreign exchange auction.

While the bank has hitherto cited the need to promote the willing-buyer willing-seller as the main platform for forex price discovery, volumes have remained low, forcing companies to use the parallel market to source US dollars.

Reserve Bank of Zimbabwe ( RBZ) exchange control director, Farai Masendu, issued a directive to banks on Wednesday exempting all grain millers and corporates holding US dollar loans from the 15 percent statutory surrender on domestic sales.

“To enable repayment of foreign currency loans, authorised dealers are advised that corporates with foreign currency loans with banks, are exempted from the 15 percent statutory surrender requirement on domestic sales.

“For administrative purposes, authorised dealers are required to submit to Exchange Control schedules of their corporate borrowers that show the name of the borrower, date of loan contraction, amount borrowed, amount repaid to date, amount outstanding and a comment on the performance of the loan. This information should be furnished to exchange control by May15, 2023,” Masendu said.

Captains of industry and commerce said the latest development, where qualifying entities are now exempted from the statutory surrender requirement on domestic sales receipts, would shore up forex they needed to service US dollar loans.

CZI president Kurai Macheza welcomed the move by the central bank, saying businesses have always been against liquidation of 15 percent of the US dollar revenue at the heavily discounted official exchange rates.

“It’s a good development, we have always not been in support of the surrender requirement on domestic sales. Now that we are more and more getting dollarised I think it’s just a step that is not necessary but the action of removing those who are borrowed, it’s a step in the right direction we welcome it.

“When you look at the dollarisation itself, you ask different people they will always have arguments for and against; there are very strong arguments for and against dollarisation,... the best that we should have is to make sure that the multicurrency system is sustained for some time.

“Early full dollarisation will not be good for the economy and it will have certain disadvantages and similarly early monocurrency (Zimdollar) also has some disadvantages.

“Given the prevailing currency volatility under the multicurrency regime, this is where we have got to identify the issues that we need to address as an economy so that we avoid those issues that cause volatility in the currency.

“I am sure they are there, we need to identify them and address them. We can’t just say because it is happening like this therefore, we must move with a full dollarised economy. Let us identify what is causing those volatilities and deal with the issues. If they are known, have we addressed them, we cannot say it can’t work,” Matsheza said.

Zimbabwe has experienced rapid inflation increase since reintroducing and floating its domestic currency in 2019 after a decade-long, again, hyperinflation-induced hiatus.

At its peak post dollarisation, Zimbabwe’s inflation reached 837,5 percent in 2019 before

rapidly declining to a two-year low of 50,1 percent in June 2020.

Notably, the Southern African country’s inflation has rallied on account of the volatility of its currency, which has depreciated from 2,5/ US$ 1 when reintroduced in February 2019 to $1088/ US$ 1, on the official interbank market.

On the parallel market, the Zimbabwe dollar changes hands for anything above 2400 to the greenback.

Zimbabwe’s largest business member organisation, the CZI, last year said the high interest rates were choking business activity.

A lot of companies that were in heavily borrowed positions, CZI’s Matsheza said last year, found it difficult to service the loans. Amid increasing dollarisation of the economy, many firms negotiated with banks for conversion of those loans into USD (loans) or altogether took exclusively US dollar loans for fresh loans.

Chipping on the scrapping of retentions on domestic sales, The Zimbabwe National Chamber of Commerce ( ZNCC) chief executive officer, Christopher Mugaga said: “Obviously... it will assist (with the creation of) a war chest in US dollar as most businesses are undercapitalised with devaluation or the depreciation of the local currency.

“If corporates are now allowed to retain 100 percent forex, what it simply means is an acknowledgment or maybe it’s a reflection of the effects of the 75 percent dollarised economy, remember 75 percent of the local transactions are in US dollars.

“If businesses are given 100 percent retention, I think the only downside is that we are actually scaling up and expediting the route to re-dollarising.

“But the upside, obviously, is most corporates are now undercapitalised with exchange rate volatility leaving companies with what we call exchange loss. So, by pushing for this, obviously I think you are trying to capacitate or build a typical war chest for companies.

Meanwhile, in line with Exchange Control Directive RP185 of 29 October 2014 and RR162 of 23 September 2016, the central bank said banks shall continue to approve, through a document management system, all loans below US$ 20 million.

Authorised dealers are required to submit to the bank for registration of all such loans with seven days of approval. But the bank stressed that authorised dealers shall not credit the external loan into the client’s FCA account before registering the loans with the central bank.

“Such submissions to Exchange Control shall be supported by client mandate letters, board resolution, loan agreement, enhanced term sheet, existing borrowings, cashflow projections, latest audited financial statements or management accounts and any other documentation relevant to the borrowing,” Masendu said.

He said contraction, as per existing foreign exchange control policy, of external loans above US$ 20 million, shall continue to require prior exchange control approvals.