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Zimbabwe Central Bank Says Agriculture Set to Boost Ailing Economy

  • Gibbs Dube

Zimbabwean central bank governor John Mangudya delivered his 2016 Monetary Policy statement in Harare, Feb. 15, 2017.

Zimbabwe’s central bank chief, John Mangudya, says the country’s economy is expected to be boosted by a revived agricultural sector owing to good rains and export incentives anchored on bond notes.

In his Monetary Policy statement issued Wednesday, Mangudya said a number of policy measures are also being implemented to transform Zimbabwe’s growth model in line with the Zimbabwe Agenda for Social and Economic Transformation (ZimAsset).

“Chief among them being the ease and cost of doing business reforms being championed by the Office of the President and Cabinet, the Public Finance Management Framework by the Ministry of Finance and Economic Development, the Special Economic Zones by the Ministry of MacroPlanning and Investment Promotion, localisation of domestic industrial production through Statutory Instrument 64 of 2016 promulgated by the Ministry of Industry and Commerce and the foreign exchange management measures put in place by the Bank.

“Moreover the introduction of an export incentive scheme financed through bond notes has seen a positive response, particularly from tobacco and gold producers. According to the Tobacco Industry and Marketing Board (TIMB), tobacco farmers have increased the hectarage under this agricultural season by around 10% from 97 000 hectares planted in 2015/2016 to 107,000 hectares with an expected output of 200-215 million kilograms of green leaf tobacco.”

He noted that the gold sector has also responded positively to the incentive scheme and the monitoring process by the Gold Mobilisation Committee, resulting in the increase in gold delivered to Fidelity Printers and Refiners (FPR) by 17% from 18.3 tonnes in 2015 to 21.4 tonnes in 2016.

Gold delivery to FPR, which excludes the gold from Platinum Group Metals (PGMs), is expected to be 25 tonnes in 2017.

POSITIVE SPIN-OFFS

“The positive spin-offs from the recent removal of Zimbabwe from the International Monetary Fund (IMF) remedial measures, following successful clearance of its arrears to the Fund in October 2016, are also expected to go a long way in reducing Zimbabwe’s country risk, thus attracting the much needed foreign investment.”

He said the completion of the clearance of external debt arrears to the rest of the international financial institutions – African Development Bank (AfDB), World Bank and European Investment Bank (EIB) – is expected to further reduce the country’s debt burden “that continues to be an albatross on Zimbabwe’s access to foreign finance for the past 16 years now at a time when other emerging markets have been making tremendous strides in their economic transformation.”

“As a consequence, Zimbabwe has lagged behind and needs to catch up with its peers.”

BREXIT IN EUROPE

Mangudya noted that the implementation and effect of Brexit in Europe will have an impact on the trade relations between Britain and the rest of Europe and also between Africa and Europe.

“Also the depreciation of the British Pound following the vote to leave the EU will affect the size of remittances to countries such as Zimbabwe. In addition, the rebalancing of the Chinese economy between production and consumption has direct impact on Zimbabwe’s exports of primary products (mainly minerals) to China.

“... This Monetary Policy Statement aims at taking opportunity of the expected good agricultural season to change the course of the economy through instituting additional policy measures and in some cases reforming current policies with a view to enhance financial stability, bolster business sentiment and increase output and exports in 2017 and beyond. This opportunity should not be squandered.”

Measures in the Monetary Policy Statement that are geared to stimulate this economic growth agenda include the strengthening the financial sector by extending the US$200 million African Export-Import Bank (Afreximbank) Trade Debt-Backed Securities (Aftrades) facility which operates on the lines of the lender of last resort at the Bank for local banks and putting in place a US$70 million nostro-stabilisation facility to deal with the delays in processing of outgoing payments by banks.

BANK RATES REDUCED

The central bank said Zimbabwe would attempt to reduce the cost of doing business by reducing lending rates charged by banks from an upper limit of 15% to 12% per annum, and by reducing charges on the use of plastic money to as low as 10 cents for small purchases of $10 and below.

He said efforts will also be made to promote efficiency and discipline in the utilisation of foreign currency by ensuring that banks comply with the foreign exchange priority guidelines, strengthen the resuscitation of firms under ZAMCO through the provision of working capital to deserving cases through normal banking channels, promote exports by revamping the horticulture finance facility and enhancing the gold development facility from US$20 million to US$40 million and put in place facilities to cater for the requirements of bonafide crossborder traders registered with recognised cross-border associations through normal banking channels and Easylink.

Fresh policies will also be targeted at strengthening the parity of bond notes to the US$ by meeting foreign exchange demand attributable to bond notes deposits, making available up to US$35 million for spearheading funding requirements under the National Financial Inclusion Strategy to meet the needs for women, SMEs, business linkages/ value chain activities and plug money laundering, among other measure.

DECLINE IN REMITTANCES

Mangudya also said remittances, which are also a major source of import financing declined by 17.9% in 2016, from US$1,917.7 million received in 2015 to US$1,574.0 million in 2016.

Of the total amount received in 2016, US$779.0 million reflects remittances from the Diaspora while remittances from International Organizations (NGOs) amounted to US$795.0 million.

The decline in Diaspora remittances is attributed to the poor performance of the global economy, the depreciation of the South African Rand (South Africa contributes about 34% of the total Diaspora remittances) and the increasing preference of the Diaspora to send remittances in kind and through informal channels.

He said, “The introduction of Diaspora Remittance Incentive Scheme (DRIS) is expected to increase the remittances sent through formal channels.

Mangudya further said export growth has not been adequate to surpass that of imports, resulting in an estimated US$1985.1 million negative trade balance in 2016. This situation is not sustainable.

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