Slash in plastic money charges hailed

HARARE - The downward review of charges on plastic money and electronic transactions will promote usage of e-channels by lowering transaction costs, economic analysts said yesterday.

This comes after Reserve Bank of Zimbabwe governor John Mangundya last week said he was working on a raft of measures to promote the enhanced use of plastic and electronic money which now accounts for 70 percent of retail transactions amid worsening cash shortages.

“The measures include charges or levies on plastic money and electronic transactions being reviewed downwards.

“In order to maintain this positive development and for more convenience to the transacting public, the bank is putting in place measures to make the use of plastic (including international credit cards) and electronic money cheaper and more attractive than using cash and to ensure that bank account holders are bona fide law-abiding and taxpaying citizens,” Mangudya said.

Financial research firm Equity Axis said: “Charges should be lowered to the extent that it makes economic sense to use e-channels when conducting very small value transactions. Demand for hard currency will thus gradually subside.”

In 2016, most banks received a major boost in their non-funded income line due to increased transaction volumes on e-channels.  This has seen the contribution of non-funded income to banks’ total operating income enjoying a huge share when compared to the previous year.

Equity Axis said use of e-channels has also its own downside which requires strong monitoring and investment in compliance monitoring systems which may in the short-term put pressure on imports, but was a cost financial services providers will incur as an adaptation to the new normal.

“The measure is aimed at encouraging the public to use formal channels when transacting, fight externalisation and cash hoarding,” the research firm said.

The apex bank has been able to allocate $100m into the economy on a weekly basis but the country has remained in the throes of a bank note shortage caused by a widening deficit as the local manufacturing industry weakens and low foreign direct investment inflows.

The central bank has established dedicated hotline numbers for the public to report individuals and firms or traders that may be involved in cash hoarding, selling or abusing or externalising of cash, or any related misdemeanour.

A reward equivalent to five percent of the reported and recovered cash amount will be offered by the Central Bank.

Equity Axis said: “A whistleblower facility has worked quite well for Zimra in enforcing tax compliance. Such a facility at RBZ will force the public to bank their cash and support the flow of cash in the economy. And maybe create jobs for a few professional whistleblowers.”

This comes as the country is currently battling a debilitating cash shortage and has introduced bond notes — a local parallel currency pegged at par with the US dollar last November under a $200 million Afreximbank loan facility but long bank queues have remained.

There is currently $140m in bond notes, $23m bond coins and an estimated $400-600m in circulation in the economy.

The RBZ claims a good agricultural season and firming mineral commodity prices are assisting in easing up forex challenges and settling external obligations but long bank queues have remained.

Mangudya has said foreign payments backlog has been reduced by more than 50 percent to $185m.

Companies that have reported their financials have attributed some of their under performances to foreign payments bottlenecks and delays in procuring imported raw materials.

Equity Axis said the $185m may not reflect the actual developments in the economy.

“Due to prioritisation of payments, some businesses and individuals have become disgruntled or are delaying submitting their payments obligation to banks and the numbers do not reflect such,” it said.

RBZ has said it will continue to provide forex allocation from an average of 25 percent of foreign exchange resources it receives from tobacco and mining exporters.

There is no end to foreign payments prioritisation yet as the economy still faces a huge trade gap.

Exports were $224,8 million in the month of March, which is a decline of six percent on the February level of $240 million, while imports continued on an upward trajectory for the third successive month, rising by 25 percent in March to $529,09 million against a February outturn of $424,3 million, official data showed.

March’s import bill was the highest since 2015 and the growth in imports at 25 percent is the fastest in 12 months.

The March exports outturn is also the lowest in seven months.

A curb in imports through prioritisation and controls such as statutory instrument 64 (SI64) has helped shore up liquidity, according to the RBZ. But some companies have said they have failed to import or maintain certain lines of businesses due to restrictions imposed by the policy.

However, the policy has started to bear positive results as noted in cooking oil sub-sector, furniture and some selected companies.

“Financial support will help revive the industrial sector which will in turn reduce the trade gap and thereby forex savings as import substitution bears fruits. There are chances that an improvement in the forex position may also result in an upsurge in imports as the economy becomes more liberal,” Equity Axis said.

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