RBZ gives banks ultimatum…Orders separation of forex and RTGs money

THE Reserve Bank of Zimbabwe (RBZ) has given banks until mid this month to create separate nostro (external bank) foreign currency accounts (FCAs) and real time gross settlement (RTGS) FCA accounts, as part of measures to preserve value for foreign currency earners and to boost market confidence.

Monetary authorities expect the measure to strengthen the multi-currency system for financial and price stability and to increase inflows of foreign currency while buttressing Government’s economic reforms started last year.

Presently, foreign currency allocation in Zimbabwe is controlled by the central bank through a priority list framework to ensure equitable distribution and guarantee availability for critical import requirements.

The new policy forms part of measures to boost confidence and transparency in the foreign currency market and rein in inflation by mitigating rent seeking behaviour and mopping up excess liquidity within the economy.

Announcing interventions through the 2018 mid-term monetary policy in Harare yesterday to address issues besetting the economy, RBZ Governor Dr John Mangudya directed banks to operationalise the policy. The governor said measures the central bank had prescribed early this year for ring fencing of foreign currency accounts for exporters, diaspora remittances, free funds, portfolio investments and international organisations had not been implemented.

Dr Mangudya said the measures were necessary as a starting point towards right sizing or rebalancing the economy.

“In February 2018, the bank introduced a policy that requires banks to ring fence foreign currency for foreign earners that include international organisations, diaspora remittances, free funds, export retention proceeds and loan proceeds.

“Numerous inquiries that have been received by the bank point to the fact that this policy has not been implemented by some banks on a transparent basis that promotes confidence within the economy,” he said.

“With immediate effect therefore banks are directed to effectively operationalise the ring fencing policy on nostro foreign currency accounts by separating foreign currency accounts into categories namely nostro FCA accounts and RTGS FCA accounts.

“Accordingly, all banks are directed to use the Know Your Client (KYC) principles to comply with the directive to separate the accounts without requiring their clients to complete any other documentation other than for new account holders,” Dr Mangudya said.

The central bank chief said banks were also required to offer reasonable deposit rates on nostro FCA accounts in line with international banking practices.

“This policy measure is expected to encourage exports, diaspora remittances, banking of foreign currency into the nostro FCA foreign currency accounts and eliminate the core-mingling or dilution effect of RTGS balances on foreign currency accounts.

“The relationship between the two categories of FCA accounts shall be parity (1 to 1). This is essential to preserve value for money for the banking public and investors during the transition to a more market based foreign currency allocation system that shall be implemented once economic fundamentals are appropriate to do so, ” he said.

In support of these measures and to enhance sanity in the foreign currency market, Dr Mangudya said the RBZ was finalising with the Afreximbank for a $500 million nostro stabilisation guarantee facility to provide nostro account holders assurance that foreign currency will be readily available as and when required.

The facility will be in place by October 20, 2018.

All Zimbabwean exporters are allowed by law to retain 100 percent of export proceeds except fold gold producers who retain 30 percent; platinum, diamond and chrome exporters retain 35 and tobacco exporters 20 percent.

The central bank is also finalising a $500 million facility to cater for strategic import requirements that include fuel, electricity, cooking oil, wheat, packaging and other essentials such as critical raw materials, medicines, chemicals and equipment. The facility entails $250 million from Germcorp (London), $150 million from Afreximbank, Afrigrain’s $100 million.

“These facilities are over and above the $100 million from CDC (United Kingdom), through Stanchart Zimbabwe, $100 from Ecobank, $30 million from IDC South Africa $25 million from ADB through CABS,” he said.

RBZ is also negotiating with international financial institutions for medium to long-term funding needed to bring sanity in the foreign currency market and assist in stabilising and growing the economy.

This will involve clearing of the country’s $7,5 billion external debt to open up access to foreign lines of credit.

Further, to reduce leakages of foreign currency through foreign payments, the central banks has introduced measures requiring all banks to use letters of credit for high value transactions, have imports supported by invoices whose banking details match with payee’s name in the banking account details, strict adherence to customer due diligence and remittance of all export proceeds on time.

To curtail arbitrage in the foreign currency market by foreign truckers, the central banks said all foreign truckers will now be required to purchase fuel in Zimbabwe using foreign currency at official exchange rates.

The same will apply to traders buying goods in Zimbabwe for sale externally, as that is deemed to be an export. Jewellers will also now be required to buy gold in foreign currency, but will now be allowed retain all export proceeds.

The Governor said previously, jewellers who bought gold from Fidelity Printers and Refiners retained only 35 percent of the export proceeds while the balance was remitted to the reserve bank for national requirements.

To curtail possible arbitrage in the purchase of gold from Fidelity printers, all purchases of gold shall now be in forex. In terms of settlement of capital gains tax (CGT) using offshore accounts, all sellers of immovable property to buyers with offshore funds are now required to pay the CGT into a Zimra designated FCA account.

In order for Zimbabwe to derive maximum benefits from offshore investments by local entities, going forward all offshore investments in the form of offshore holding companies intending to dispose of part of their shares to foreign investors shall be required to repatriate all the realised proceeds to Zimbabwe.

In cases where the offshore holding company intends to expand into other countries, a minimum portion of raised capital equal to the level of dilution should be remitted to Zimbabwe to support local operations.