RBZ in crisis meeting with oil firms
Reserve Bank of Zimbabwe governor John Mangudya
THE Reserve Bank of Zimbabwe (RBZ) will next week hold a crisis meeting with petroleum companies, as it seeks to avert disaster after several fuel distributors ran dry this week.
The meeting will take place on Monday, immediately after the arrival of RBZ governor, John Mangudya, who had flown to the United States for the World Bank and International Monetary Fund annual spring meetings, held in Washington DC.
“What I think is happening is that while banks and the Reserve Bank of Zimbabwe are making payments for current fuel supplies, there are outstanding payments that need to be dealt with,” the central bank boss told the Financial Gazette.
“We are going to be meeting fuel companies next week to strategise on the historical debt,” added Mangudya.
Mangudya said banks were injecting US$12 million per week for petroleum imports, enough for domestic consumption.
The country requires about four million litres of diesel and three million litres of petrol daily.
He said the central bank had arranged a US$215 million facility to stabilise the processing of foreign payments by banks to expedite critical imports.
While the US$12 million that banks are releasing to oil firms weekly is enough to cover national requirements, there were unforeseen circumstances that the central bank boss will seek to iron out.
Petroleum importers are saddled with debts, he said, which were affecting the flow of fuel into the country, even after payments for current requirements were made.
The country, whose stock of foreign currency is mainly boosted by earnings from gold and platinum exports, has also entered the off peak period for tobacco exports, another foreign currency earner.
It helped defuse liquidity shortages until the marketing season ended in August.
The country generated about US$594 million from tobacco sales this season.
Now that the selling season is over, Zimbabwe’s dependence has shifted mainly to gold and platinum, whose prices have tumbled.
Last week, gold plunged to its lowest price in three years when prices dropped to less that US$1 200 per ounce, while platinum, which touched US$1 500 per ounce during boom times in 2011, has recently struggled to break past the US$951 per ounce mark.
This has spelt doom for the economy.
Mangudya noted: “The economy is currently mainly relying on foreign exchange earnings from gold and platinum exports for both the domestic physical cash requirements for day to day transactions and for importation of goods and services including fuel and raw materials for industry. This is the reason why we had to arrange for the foreign exchange stabilisation facilities amounting to US$215 million as reported in the Monetary Policy Statement to mitigate the current challenges and also to look after these gold and platinum exporters that are supporting the foreign exchange needs of the economy through export incentives.
“We have started to request for draw downs from the reported facilities. Going forward, there is urgent need to develop a strong and diversified domestic economy that can withstand the cyclical challenges of foreign exchange. We need to be a productive economy and not a speculative economy,” Mangudya added.
Oil firms warned of a deteriorating supply situation in the latest twist to a long drawn crisis that has paralysed the economy.
The looming fuel crisis highlighted by pockets of shortages that hit the market at the weekend came as banks have spent the past 10 months battling to secure cash for customers.
Oil firms warned of a deteriorating supply situation in the latest twist to a long drawn crisis that has paralysed the economy.
There has been a marked decline in market confidence in the financial markets, which has also triggered a run on deposits.
The Petroleum Marketers Association, which represented the interests of fuel firms, is now defunct, but individual firms said so serious was the liquidity shortage that some players were now receiving about one sixth of their daily takings in hard cash.
The rest of sales were now generated through digital payment systems such as swiping and the mobile money platform.
Consumers have resorted to electronic payments in the wake of the liquidity crunch, which has been fomented by the depletion of nostro accounts, the accounts that banks hold in foreign financial institutions to fund imports for their clients and purchasing US dollar notes.
One of the major dealers with a countrywide network said it used to generate close US$3 million per day in cash, but this had dropped to about US$500 000 per day.
The bulk of the takings were now generated through plastic money.
But suppliers are demanding hard cash before releasing fuel, leaving the country in a desperate situation.
The country is gearing for the festive season, and any fuel shortage would spoil the party for Zimbabweans and could even scare away tourists, desperately needed for their cash.
Tendai Biti, a former finance minister during the inclusive government between 2009 and 2013, warned that the fuel crisis was likely to deteriorate as the cash situation worsened.
He accused government of “wiping” cash out of the system.
Biti is now president of the opposition People’s Democratic Party.
“The current fuel crisis will get worse. It is proof that the government has wiped out cash in the system. No cash in banks so bond notes are coming,” Biti wrote on his twitter account on Tuesday.
Government also acknowledged the crisis this week, with permanent secretary in the Ministry of Energy and Power Development, Patson Mbiriri, telling the State media that the oil companies have been told that there is no foreign currency.
Signs of impending crisis began manifesting in July, when the RBZ directed banks to apply the matching principle when processing foreign payments for fuel dealers.
Under the system, banks process fuel and crude oil payments for cash depositing companies by matching the cash deposits with cross border transfers.
“Authorised dealers are advised, with immediate effect, to process fuel payment transactions for cash depositing fuel companies by matching, as an interim measure, the cash deposits with cross border transfers on a ratio of 1:1,” the RBZ said in exchange control circular no. 5 of 2016.
Similar directives were also made for cooking oil manufacturers.
The RBZ directed banks to declare cash deposits from fuel and crude oil importers.
Fuel and soya crude oil payments are listed in the priority list issued by the central bank.
The directives came as the RBZ’s monthly review for June indicated that cash transactions declined by 25 percent to US$534 million as the market switched to plastic money in response to the cash shortages, which have seen banks imposing restrictions on withdrawals.
Companies have installed point of sale machines to deal with cash shortages and fuel dealers are also offering swiping facilities.
But these are just balance transfers, which are not backed by real cash.
Financial market experts say recipients of payments through digital payment systems, such as the Real Time Gross Settlement system, have been discounting them on the domestic market and exporting real money out of the system, thereby depleting nostro account balances.