Banks call for quick Lima deal

HARARE - Government must negotiate the Lima deal to avoid a “cliff edge” cash crisis forcing banks to limit amounts to individuals and companies, leading Zimbabwean commercial banks have said.

Finance minister Patrick Chinamasa has said he is forging ahead with formal negotiations with international creditors such as the Washington-based World Bank and the Abidjan-based African Development Bank (AfDB) to clear arrears of $1,8 billion, a major step towards unlocking new funding.

Chinamasa, last year, proposed an arrears repayment plan at the IMF/World Bank annual meetings in Lima in Peru where consensus was reached with creditors on a repayment strategy which entailed the clearance of the country’s arrears.

This comes as an AfDB team led by Sibry Tapsoba, the bank’s director for the Transition Support department, began a trip to Zimbabwe on Tuesday to gauge its progress in its re-engagement with the international community.

While in Zimbabwe, Tapsoba, the most senior AfDB visitor to Zimbabwe for several years, met with civil society organisations and the Paris Club development partners at the National Association of Non-Governmental Organisation (Nango) offices in Harare.

Britain, Germany, France, US and others are part of the Paris Club — a forum where Zimbabwe’s debt to the international financial institutions (IFIs) is discussed and agreement is reached on how to manage that ballooning debt.

This comes as Zimbabwe’s commercial banks called on the government and the international creditors to commit early to agreeing a deal to clear the debt and open new lines of credit to shore up liquidity.

Customers from several banks have struggled to access money from automated teller machines (ATMs) while banking halls daily withdrawals have been limited to as low as $50.

Zimbabwe’s largest banking group CBZ Holdings — which has been forced to suspend the use of Visa cards for local transactions due to high costs and cash shortages — commended government for taking steps towards the normalisation of the country’s international credit rating when it cleared the outstanding arrears to the International Monetary Fund (IMF).

Zimbabwe — saddled with a total external debt of over $7 billion — has just settled the IMF’s $124 million in arrears accrued since 2000, but still owes another $600 000 to the AfDB while an additional $1 billion is characterised as World Bank debt, and also owes other creditors.

To honour these arrears, Zimbabwe is borrowing from the Afrexim Bank in Egypt after it cleared the IMF arrears by drawing rights of about $130 million from the Breton Woods institution.

Subsequently, the IMF removed the remedial measures that had been applied on Zimbabwe since 2001.

“However, the delayed conclusion of the broader arrears clearance strategy, and adoption of a new economic reform programme, resulted in the adoption of short term measures by both the government and private sector to navigate through the tough economic and business environment,” Elliot Mugamu, the outgoing group chairperson of CBZ — which has the most deposits in Zimbabwe — said in the latest financial results.

“These measures included the introduction of bond notes through an Afrexim-backed $200 million Export Incentive Scheme, statutory instrument (SI) 64 to support local producers and restrictions on some financial transactions, among others.”

The Reserve Bank of Zimbabwe (RBZ) last November introduced a “bond note” currency to ease chronic cash shortages, but long queues have remained at banks.

The Zimbabwe National Chamber of Commerce (ZNCC) has warned that the coming in of bond notes has seen US dollars in circulation begin to vanish and injecting more bond notes will likely see  US dollars continuing to vanish.

The injection of $5 bond notes worth $15 million by the RBZ last month brought to $94 million the total amount of the fiat currency in circulation.

“With bond notes not being a permanent solution, there is need for the (RBZ) governor to find a permanent solution for the current liquidity crisis.

“Measures still need to be outlined on what will be done once the $200m facility is exhausted,” ZNCC economist Kipson Gundani said.

MBCA Bank, a unit of Nedbank group — the fourth largest bank in South Africa by market capitalisation and customer numbers — also said negotiations with international creditors should commence as early as possible.

“Zimbabwe’s continued re-engagement with the international financial institutions and successful implementation of structural reforms will unlock opportunities for the country and enable medium to long term growth,” MBCA chairperson Willard Zireva said in a statement accompanying the results, adding the “outlook maybe negatively impacted by increased power shortages, bad road and rail infrastructure, reduced agricultural earnings due to excessive rains, and low mining earnings due to weak commodity prices.”

The international creditors said they would only resume direct lending to Zimbabwe when the arrears were cleared.

Zimbabwe was tasked in Lima with demonstrating a strong track record of reform, and implementing related governance reforms focused on financial and economic measures, and greater transparency and accountability.

Several western governments embraced the opportunity to rebuild bridges with Harare, expecting the ruling Zanu PF to adopt a new approach.

At the Lima talks, Chinamasa promised changes to Zanu PF’s controversial indigenisation policy and significant cuts in government expenditure — in particular reducing the bloated civil service salary bill.

These hopes have been dashed, however, and progress in implementing reforms has been stymied by opaque factional dynamics and political machinations within the ruling party.

Chinamasa in September got a slap down from President Robert Mugabe after announcing a raft of measures to slash government spending.

Government issued a damning statement saying Cabinet had never approved Chinamasa’s proposals, which included a suspension of civil servants’ bonuses, wage cuts, job cuts, and a range of other austerity measures. Chinamasa’s austerity measures also imposed tax on civil servants’ allowances, coupled with a promise to axe 25 000 workers, citing budgetary limitations.

According to the Zimbabwe National Statistical Agency, government employs 300 000 workers, a number which does not include the army, air force, police and prisons.

“Both the governor and the minister of Finance have in the past offered sound advice which has been ignored,” chartered accountant Daniel Ngwira said.

Devoid of balance of payment support from the IMF or foreign credit from customary Western donors, Harare administers a hand-to-mouth national spending plan, appropriating over 90 percent of its budget revenue on wages, which it is struggling to pay.

The RBZ has embarked on a campaign to boost electronic payments in a country long dominated by cash in a bid to respond to a deepening cash crisis.

Zimbabwe lags far behind other regional countries in non-cash transactions because of high charges. But Zimbabweans are suddenly falling in love with payment by plastic after capital controls were imposed and banks struggle to dispense cash.

Zireva said: “Banks have increased investment in Point-Of-Sale (POS) devices and enhancing mobile banking platforms to cater for the increased demand for plastic money usage due to continued currency shortages. Usage on these platforms has increased by over 400 percent since January 2016.”

Some shopkeepers have been reluctant to switch to plastic, partly due to the extra cost. Merchants pay for a card reader plus a commission to the bank on each transaction, with charges varying depending on the card issuer and the trader’s credit rating and annual sales.

Supermarkets and some wholesalers in Harare are rejecting plastic money, demanding cash for basics like cooking oil, sugar and rice ostensibly because manufacturers demand hard cash payment to supply them.

This is being witnessed especially in shops that are owned by foreigners such as Indians, Chinese and Asians who argue the commodities are now sold on a strictly cash basis in order for them to be able to re-stock.

Barclays Zimbabwe — whose parent company Barclays Bank Plc is set to pull out of Zimbabwe — said the second half of 2016 “saw the market experience worsening cash shortages and a further strain on the capacity to make foreign payments.”

“Cash withdrawal limits were introduced alongside enhanced controls in foreign payments,” Barclays chairperson Anthony Mandiwanza said, also alluding to the introduction of bond notes as an incentive aimed at encouraging exports and diaspora remittances.

“Within this landscape, the bank will continue to prioritise efforts to ensure the security of depositors’ funds whilst also seeking to preserve value,” he said.

ZB Financial Holdings Limited — whose holding ZimRe Holdings Limited company was removed from the US Department of the Treasury’s Office of Foreign Assets Control (Ofac) sanctions list in January — said this was a major milestone that will open trading opportunities in international markets. The group’s assets including cash were blocked and Ofac regularly intercepted its cash remittances without notice.

“Restoration of foreign business activities, has so far advanced satisfactorily (after the sanctions delisting),” Peter Nyoni, the ZB acting chairperson said, adding the bank was in “an increasingly difficult operating environment.”

“The shortage of bank notes and the resultant payments log-jam had negative consequences on efforts to sustain confidence in the financial sector,” he said.

Piers Pigou, senior consultant at the International Crisis Group said: “The road back to credibility and potential solvency was always going to be painful; the government has to cobble together a loan package to pay its arrears before it can even qualify for critically needed additional budget support.”

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