The inter-bank foreign exchange market is averaging trades of US$12 million weekly, three weeks after its introduction, Reserve Bank of Zimbabwe (RBZ) governor Dr John Mangudya told Parliamentarians yesterday.
Appearing before the Portfolio Committees on Public Accounts Budget, Finance and Economic Development, the central bank governor hinted that some companies have been struggling to purchase foreign currency on the official market, even at the discounted rate (compared to the parallel market) starting rate of 2,5 when the market was introduced.
The forex inter-bank market started trading on February 22, 2019 just two days after the announcement of the Monetary Policy Statement (MPS) on February 20, 2019.
“On average for the past three weeks since the inter-bank market started it has been about US$12 million that has been traded. What we have noticed is that those parents with children at foreign schools and colleges are struggling to buy foreign currency at US$1 to 2,5 (RTGS dollars) because they do not have the RTGS dollars.
“Even some firms who are claiming that they do not have foreign currency, it (forex) is so because they cannot afford to buy it at 2,5.
The RBZ has previously indicated that 70 percent of the foreign currency traded through the inter-bank market should go towards the productive sector imports and requirements.
In respect of the guidelines for utilisation of foreign exchange, priority under the “70 percent” include: “net exporters who import raw materials or machinery; non-exporting importers of raw materials and machinery for local production that directly substitute import of essential finished goods; imports of critical and strategic goods such as basic food stuffs and fuel, (drugs) and agro-chemicals granted these goods are not available locally (to be funded through Letters of Credit and allocations from the Allocation Committee), and repayments of offshore loans procured to fund productive activities.”
Other top priorities also include payments for services not available in Zimbabwe; foreign investments (capital disinvestment, profits and dividends; remittance of rental income from properties owned by non-resident Zimbabweans and foreign investors that acquired property using funds originating from offshore and transferred through normal banking channels; remittance of pension income for non-resident Zimbabweans who formally emigrated from Zimbabwe; importation of packaging material not available in Zimbabwe; university and college fees; mining consumables, and goods and services not local available for tourism operators.
The RBZ boss reiterated that the 2,5 interbank market determined exchange rate, which banks agreed upon as a starting rate, is not fixed and will get to equilibrium levels ‘soon’.
“This is just the first month, give the inter-bank market about two to three months, the rate will reach an equilibrium, which may be lower than the 2,5,” he said, adding that the rate may shift soon with the tobacco selling season opening later this month.
Tobacco is the country’s second (single) largest foreign currency earner behind the mining sector (gold specifically).
“Tobacco auctions will begin on March 20, 2019 and we do believe that before or on that date the rate will have reached its equilibrium,” said Dr Mangudya.
Meanwhile, the RBZ governor said he has been engaging with those in the tobacco sector with a view to increasing tobacco farmers’ foreign currency retention to between 90 to 180 days.
He confirmed that tobacco farmers will retain 50 percent of their net export proceeds.