MONETARY POLICY STATEMENT THE FIRST QUARTER TO 31 MARCH, 2004 Issued IN TERMS OF THE RESERVE BANK OF ZIMBABWE ACT CHAPTER 22:15, SECTION 46 By DR. G. GONO GOVENOR RESERVE BANK OF ZIMBABWE APRIL 2004 ___________ The Monetary Policy Statement is issued bi-annually, in January and June of each year.. In an attempt to lay out the Bank’s monetary policy stance and consistent with the 2004 National Budget and the Governor’s maiden Monetary Policy Statement announced on 18 December, 2003, it has become necessary, however to review and articulate complementary monetary measures on a quarterly basis at the same time, fulfilling the requirements of the Reserve Bank of Zimbabwe Act.
Transcript
MONETARY POLICY STATEMENT
THE FIRST QUARTER TO 31 MARCH, 2004
Issued
IN TERMS OF THE RESERVE BANK OF ZIMBABWE ACT CHAPTER 22:15, SECTION 46
By
DR. G. GONO GOVENOR
RESERVE BANK OF ZIMBABWE
APRIL 2004
___________ The Monetary Policy Statement is issued bi-annually, in January and June of each year.. In an attempt to lay out the Bank’s monetary policy stance and consistent with the 2004 National Budget and the Governor’s maiden Monetary Policy Statement announced on 18 December, 2003, it has become necessary, however to review and articulate complementary monetary measures on a quarterly basis at the same time, fulfilling the requirements of the Reserve Bank of Zimbabwe Act.
Table Of Contents INTRODUCTION AND BACKGROUND ..........................................................................................3 TURNAROUND PROGRESS TO DATE............................................................................................5 THE FINANCIAL SECTOR...............................................................................................................14 TROUBLED BANK FUND .................................................................................................................17 CORPORATE GOVERNANCE............................................................................................................19 EARLY WARNING SYSTEMS .........................................................................................................20 BANK INSOLVENCY AND INDIGENISATION ............................................................................21 MANAGEMENT OF CAPITAL ........................................................................................................23 LICENSING FRAMEWORK.............................................................................................................23 ASSET MANAGEMENT COMPANIES...........................................................................................24 MICROFINANCE INSTITUTIONS..................................................................................................25 OTHER SECTORAL REVIEWS AND INTERVENTIONS...........................................................25 GROSS NATIONAL PRODUCT (GDP)........................................................................................................25 AGRICULTURE..................................................................................................................................26 TURNAROUND RESPONSE .............................................................................................................27 MANUFACTURING ...........................................................................................................................32 MINING SECTOR...............................................................................................................................34 TOURISM SECTOR............................................................................................................................35 PUBLIC ENTERPRISES ....................................................................................................................36 GRAIN MARKETING BOARD (GMB)............................................................................................37 NATIONAL RAILWAYS OF ZIMBABWE (NRZ) .........................................................................37 ENERGY...............................................................................................................................................39 NATIONAL OIL COMPANY OF ZIMBABWE (NOCZIM)..........................................................40 ZIMBABWE ELECTRICITY SUPPLY AUTHORITY (ZESA) ....................................................41 TELECOMMUNICATIONS ..............................................................................................................43 EXPORT PROMOTION: BACKGROUND.....................................................................................44 EXPORT SUPPORT SCHEMES .......................................................................................................47 CARROT AND STICK EXPORT RETENTIONS SCHEME.........................................................47 TOBACCO SUPPORT PRICE........................................................................................................................53 FORM CD1 NON-ACQUITALS ........................................................................................................54 MOBILISATION OF DIASPORA FUNDS.......................................................................................56 OPERATION OF FOREIGN CURRENCY ACCOUNTS (FCAS).................................................59 EXCHANGE RATE MANAGEMENT..............................................................................................62 FOREIGN EXCHANGE FLOWS UNDER THE AUCTION SYSTEM.........................................64 MINING RIGHTS................................................................................................................................68 PRODUCTIVE SECTOR SUPPORT ................................................................................................70 ANTI-INFLATION MONEY SUPPLY MEASURES ......................................................................74 GOVERNMENT ACCESS TO RESERVE BANK WINDOW........................................................75 DISTRIBUTION OF BANKING SECTOR CREDIT ......................................................................77 INTEREST RATES POLICY .............................................................................................................79
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ACCOMMODATION POLICY .........................................................................................................80 OPEN MARKET OPERATIONS INSTRUMENTS.........................................................................83 NATIONAL PAYMENTS SYSTEM..................................................................................................83 SOCIAL CONTRACT.........................................................................................................................86 TELECOMMUNICATIONS INDUSTRY.........................................................................................87 IMPORTANCE OF REGIONAL MARKETS ..................................................................................89 EXCHANGE CONTROL VIOLATIONS AND REPATRIATION OF FUNDS. ..........................92 FINANCIAL SECTOR CHARTER ...................................................................................................94 EXTENDED BANKING HOURS.......................................................................................................95 ENGAGEMENT WITH OUR CREDITORS ....................................................................................96 CONCLUSION.....................................................................................................................................98
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RESERVE BANK OF ZIMBABWE
MONETARY POLICY STATEMENT: 2004 FIRST QUARTER
REVIEW 1. INTRODUCTION AND BACKGROUND 1.1 In terms of the Reserve Bank of Zimbabwe Act, Chapter 22:15,
section 46, I am required to issue the Monetary Policy Statement bi-
annually, in January and in June of each year.
1.2 It has, however, become imperative that the Reserve Bank makes a
much more frequent review of the policy framework on a quarterly
basis until such time as our macroeconomic environment is fully
stabilized.
1.3 My first Monetary Policy Statement of 18 December 2003, which laid
the Five Year Vision and its roadmap, has been in operation for a little
over 100 days.
1.4 Though seemingly short on the calendar, this formative stage of my
term as Governor has been tremendously hectic, marked by
sustained transformation in the financial sector, as well as the
emergence of a renewed deep spirit of public-private sector and labour
cooperation in the resolution of the country’s existing economic
challenges through action and ideas.
1.5 In my previous statement, I did profess my profound indebtedness to
various stakeholders from all segments of the economy who had
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selflessly played a pivotal role in contributing to the strategic thinking
of the Reserve Bank.
1.6 I wish to once again, acknowledge with gratitude, the support that I
continue to receive from all stakeholders making up our socio-
political and economic universe.
1.7 The first quarter of the year has also taught us that, as a Nation, we
need unwavering commitment and endurance as we confront and see
through the pain and temporary setbacks that typically define a
home-grown dedicated and self-correction economic program which
we have collectively chosen to follow. We are, and should be,
masters of our own destiny with outsiders only coming in to assist
us.
1.8 As Monetary Authorities, we have also come to fully comprehend
the form, substance and destructive effects of the widespread
corporate incest, untoward behaviour and financial cannibalism
that had entrenched itself in our midst, spurred by the gratuitous
subordination of corporate governance norms in pursuit of
personal gain as well as a lax supervision and surveillance regime.
1.9 Naturally, like any other Central Bank the world over, we could not
sit, standby and watch whilst this cancerous development
worsened the plight of our economy in general and that of
depositors in particular. It is a cancer we needed to deal with
decisively and we remain on high alert to deal severely with any
resurgence of same.
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1.10 Furthermore as Monetary Authorities, we are resolute in our
determination to build and sustain a financial sector with thoroughly
disciplined, honest and professional operators who will steer the
nation’s wealth towards lasting economic development as opposed to
short term gains.
2. TURNAROUND PROGRESS TO DATE
2.1. The purpose of this 2004 first quarter Monetary Policy Statement
Review is to take stock of the achievements registered and challenges
faced to date, from when the new monetary policy framework came
into effect on 1 January, 2004. In turnarounds, Vision is followed
by Strategy, followed by implementation. Frequent reviews and
monitoring of performance to consolidate the vision or to take
corrective actions are an indispensable part of any turnaround journey.
2.2. The Monetary Policy roadmap we unveiled in December 2003,
sought to achieve the following broad objectives, among others.
(a) Stabilize the inflationary spiral to maintain the internal value of the
Zimbabwe dollar, and hence, protect real incomes of corporates,
households, Government and society in general.
(b) Arrest pressures on the exchange rate to maintain the external value
of the Zimbabwe dollar through exchange rate stability, and
normalize foreign exchange market trading including accountability
thereof.
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(c) Arrest job losses and increase employment levels through greater
capacity utilization and investment growth.
(d) Promote collective cooperation through stakeholder participation and
dialogue on matters of the national economy.
(e) Promote a stable, reliable, sound and effective financial system to
support economic growth and development.
(f) Re-engage the international community to lay a sound basis for the
re-establishment of Zimbabwe’s relations with international creditors
and other global business partners.
(g) Engage Zimbabweans in the Diaspora and involve them in the
turnaround of our economy and in other supportive initiatives.
(h) Begin to build foreign currency reserves of our own resources.
(i) Support productive sectors of the economy through low-cost finance
while allowing the market to determine rates for non-productive, non
priority level spending.
2.3 SUCCESSES TO DATE
(a) Whilst it is notably too early to fully account for successes and
failures of the turnaround initiative, as Monetary Authorities, we
are pleased to share with stakeholders some encouraging pointers
towards success in meeting our shared Vision of sustained economic
revival.
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(b) Credit for these modest achievements, in line with my Maiden
Statement in December 2003, goes to all Zimbabweans, who have
rallied behind our efforts todate.
(c) On the inflation front, we have managed to burst the bubble of
runaway monthly increases in the general level of prices, as had
become the norm in 2003.
(d) Reflecting this, month-on-month inflation, which averaged 18% in
2003 and reached a peak of 33.6% in November, 2003, retreated to
13.7% in January, 2004, 6% in February, before further decelerating
to 5.9% in March, 2004.
Month-on-month inflation profile: January 2003-March 2004
miners, retailers, exporters, National Economic Consultative
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Forum, Tourism, ZIMRA, Ministry of Industry and International
Trade and the President’s Office, among many others, to actively
engage each other on broad policy issues and alternative
implementation strategies and priorities.
(p) Though at inception, the Advisory Board was initially mandated to
focus on exchange rate matters, the richness of deliberations soon
compelled mutual convergence of minds on the expansion of the
Board’s mandate to also cover other broad monetary, and
structural policy issues.
(q) Activities of the Advisory Board, which has met religiously every
week since 19 January, 2004, have thus become a constant source of
inspiration to the Central Bank on the immeasurable strides that can
be achieved through stakeholder engagement and cross-pollination of
ideas.
(r) As Monetary Authorities, we also sought to arrest growing
unemployment, capacity underutilization and rapid decline in national
production through enhancement of producer viability and quick
removal of bottlenecks which militate against our economic revival
efforts.
(s) To this end, we are heartened by the positive feedback that is
coming from industry, commerce, agriculture, mining, tourism,
and the nascent informal sector, on the fruitful impact the
concessional financing facility is having on economic production, job
creation/preservation and capacity utilization.
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(t) We had also pledged support to the informal sector during the
December 2003 Monetary Policy Statement.
(u) We are pleased to have set aside Z$12 billion for the informal
sector, which is being channeled through SEDCO for onward
disbursement to beneficiaries throughout the country, as we gear
to unlock this sector’s economic potential and grow the micro-
enterprises into economic giants of tomorrow.
(v) Realizing gold’s direct positive bearing on the country’s foreign
exchange reserves, we also undertook to enhance viability and
increase deliveries of this strategic resource to build up national
reserves. This achievement was made possible through the
cooperation of the miners themselves (small and large), Fidelity
Collection Centres, Ministry of Mines, and Law Enforcement agents
of the State.
(w) We are pleased to note considerable increase in gold deliveries over
the first quarter of 2004 as reported below:
(i) Over the period January-March 2004, 5.13 tonnes of gold,
worth US$67.3 million has been delivered, compared to 3.4
tonnes worth US$39.0 million recorded over the same
period in 2003. In growth terms this represents increases of
50.6% and 72.6% in volume and value terms, respectively.
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GOLD SALES:MONTHLY US$ MILLIONS FIRST QUARTER COMPARATIVES FOR 2003 & 2004
0
5
10
15
20
25
30
Jan Feb Mar
US
$ M
ILLI
ON
S
2004
2003
Gold Sales in US$ millions
Year/Month Jan Feb Mar Cumulative
2003 14.9 14.4 9.7 39.0
2004 25.3 23.9 18.1 67.3
Growth ‘04/03 69.8% 66.0% 86.6% 72.6%
(x) This, coupled with growing confidence in the foreign exchange
auction system has seen us manage to realize total foreign exchange
inflows, including FCA liquidations, of US$333.5 million during the
first quarter of 2004, which compared much favorably with
US$301.7 million achieved for the entire 12 months in 2003.
(y) The experience over the last three months has humbled us in that
there is a general eagerness by Zimbabweans in industry and
commerce, agriculture, Government, labour, those in the Diaspora and
across all walks of life, to constructively put heads together in
supporting the worthy cause of turning around the economy.
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(z) A key priority that we had also set to achieve, through monetary
policy, was the re-engagement of the international community
especially our creditors and global business partners.
(aa) To a large extent, some of the international creditors have already
started acknowledging our modest efforts towards re-defining
Zimbabwe’s space in the global marketplace. Our appreciation thus
goes to them individually and collectively as we expect our efforts to
find favor and support in due course.
(bb) We also sought to strengthen the financial sector through
discipline, enhanced corporate governance, impartial and close
supervision and surveillance, including the insistence of tighter
financial controls and risk management systems at institutional levels.
(cc) Evidence on the ground seems to firmly suggest that we are on
course towards meeting this objective.
2.4 OUR SHORT-COMINGS TO DATE
(a) As Monetary Authorities, we remain, deeply remorseful over the
failure of our systems to timeously and appropriately guide the market
in areas of prudential financial sector management.
(b) Most of the observed short-comings in the financial sector cannot
entirely be blamed on the sector participants. With hindsight, we as
the Central Bank feel that we could have guided the sector much
better than we did, especially during the last half of 2003, when a lot
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of the short-comings seem to have accelerated. We are taking self-
corrective action in this regard.
(c) We have also, historically and most recently, not adequately and
consistently guided the market on our desired path of interest rates as
we pursued the twin objectives of a quick supply response and a
disinflation program. Thus the country’s interest rate structure has
been unnecessarily punitive to borrowers while at the same time
dis-incentivising savers. We seek to correct these shortcomings in
this Policy Review Statement.
(d) Notwithstanding these shortcomings, we remain resolute and are
encouraged by the ample signs of goodwill and unreserved
support all stakeholders are giving us.
3. THE FINANCIAL SECTOR 3.1 Major handicaps that have resulted in protracted liquidity and
solvency challenges at some financial institutions have largely
encompassed a combination of the following factors:
(a) Extensive diversion of management’s attention from the day to
day running of the financial institutions, with more focus placed on
running of commercial enterprises outside the job of running their
banks.
(b) High prevalence of insider loans typified by generous advances to
banks’ directors, management or associated corporates.
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(c) Failure by some banks to widely diversify the shareholding
structures of their banks, leading to undue influence on the day to
day operations by the owner-managers.
(d) Imprudent credit risk management frameworks, marked by over
concentration of lending to a few associated groups of companies,
effectively increasing default risk, as well as hampering a wider
positive credit impact on other economic activities for
achievement of a broad-based supply response.
(e) Evasion from core banking business, and tying disproportionately
large sums of depositors’ funds in speculative activities, thereby
exposing their businesses to high risks of asset price bubbles.
(f) Deliberate utilization of local currency liquidity in purchases of
foreign currency from the illegal parallel and underground foreign
exchange markets for funding of offshore activities and accounts.
(g) Inadequate Board oversight, aggravated by cross-sitting by the
same Directors on more than one board of financial institutions,
which increased room for conflict of interest.
(h) Weak controls, guidelines, procedures and bank-wide risk
management frameworks.
3.2 A key part of the Reserve Bank’s mandate is to ensure that these
limitations are cleared, so as to build market confidence in the
financial sector and cultivate a smooth operation of the
intermediation process between savers and investors.
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3.3 It is for these reasons that, the first quarter of the year has seen
Monetary Authorities taking various corrective measures, which
included:
(a) Placement of some financial institutions under curatorship
management;
(b) Enforcement of Board and management changes;
(c) Establishment of the Troubled Bank fund, under which support to
distressed banks was given to enable them to reposition their balance
sheets.
(d) Closure of some institutions where the degree of insolvency was
beyond reach of any salvage measures.
3.4 These measures, which formed the initial phase of re-orienting the
financial sector, were intended to arrest the propagation of
instabilities at a few institutions across the whole financial system.
3.5 Resolution of financial distresses and financial crises during the early
to mid-80’s and the 90’s in such countries as the Philippines,
Thailand, Malaysia, Spain, Argentina and Uruguay was achieved
through attentive focus on these key pillars of Central Bank
intervention.
3.6 As Governor of the Reserve Bank, I want to reassure the public that
our response to the challenges in the financial sector are always
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guided by an express desire to protect depositors and creditors
interests, as well as safeguard the general stability of the financial
system.
3.7 As Monetary Authorities, we have also committed ourselves to closer
and more intimate communication with the public to ensure that
there is a clear understanding of the measures we take to resolve
financial sector challenges as they arise.
4. TROUBLED BANK FUND
4.1 To safeguard and minimize disruptive medium-term liquidity
mismatches, a Troubled Bank Fund was created in December 2003,
to serve as a contingent pool from which banks that faced liquidity
challenges accessed funding to stabilize their operations.
4.2 The Reserve Bank is pleased to note that the majority of the affected
Banks are taking satisfactory measures that are reorienting their
operations back to normalcy.
4.3 As Monetary Authorities, we want to assure the banking public that
the financial sector as a whole remains safe and sound, and is ready to
continue to play the critical intermediary role between savings and
investment in the economy.
5. CONSOLIDATED SUPERVISION
5.1 Under the framework of the Consolidated Supervision, which was
rolled out in January 2004, the Reserve Bank will now license bank
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holding companies to ensure that these structures are not abused to
indulge in speculative non-banking business at the expense of stability
at the subsidiary financial institutions.
5.2 Where a locally registered bank holding company has subsidiaries
operating in other jurisdictions, the Reserve Bank as the home
supervisory authority will have the power to demand the closure of
the cross-border activities or imposing any limitations as would be
deemed fit.
5.3 Efforts are also in progress to expand the scope of Reserve Bank
oversight to microfinance institutions.
INTERNATIONAL RATINGS
5.4 In line with global trends and the need to encourage local banks to
conform to international best practice, with effect from the 1st of
January 2005, there will be a mandatory requirement that each
banking institution be subject to an agreed international rating
framework.
5.5 Banks are therefore, encouraged to prime their operations and
systems for this critical requirement, which is also meant to
enhance the scope for easier brokerage of correspondent banking
relationships between local financial institutions and their
international counterparties.
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6. CORPORATE GOVERNANCE
BOARD COMPOSITION
6.1 In line with international best practice on corporate governance,
there is need to strike an appropriate balance between executive and
independent non-executive directors.
6.2 Consistent with this, it is now a requirement that boards of banking
institutions have majority of independent non-executive directors.
6.3 It should be noted that an independent director is a non-executive
director who:
(a) is not a representative of a shareholder which has the ability to control
or significantly influence management;
(b) has not been employed by and has no immediate family members who
have been employed by the financial institution in an executive
capacity in the preceding three years;
(c) is free from a significant business relationship as supplier, advisor, or
customer with the financial institution or its subsidiaries.
7. SEPARATION OF OWNERS FROM MANAGEMENT
7.1 Against the background of fundamental compromises of sound
corporate governance that we have seen displayed by owner-
managed institutions, and in the spirit of promoting greater
transparency and accountability in the financial sector, no
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shareholder with a 10% stake or more shall form part of that
institution’s management, nor Chair the Board.
7.2 Banks are expected to comply with this requirement by not later
than the 30th of September 2004.
8. RISK MANAGEMENT
8.1 The Reserve Bank will closely monitor risk management systems and
practices in the financial sector. To facilitate this, the Bank will soon
introduce amended returns to tighten the management of
exposure to liquidity and interest rate risk.
8.2 With effect from January 2004, banking institutions in Zimbabwe are
required to allocate capital for market and operational risk. This
requirement will ensure that banking institutions hold adequate
regulatory and economic capital for the full spectrum of risks they are
exposed to.
9. EARLY WARNING SYSTEMS
9.1 The Reserve Bank will soon establish a comprehensive early warning
system, which is expected to provide valuable information on
potential distressed banks for preventative measures to be taken
before the challenges at the institution materialize.
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10 BANK INSOLVENCY AND INDIGENISATION
10.1 Questions have been raised over the last three months about the
Central Bank’s attitude towards the indigenisation of the economy
in general and the financial sector in particular with a few
stakeholders innocently misconstruing our declared intolerance of
indiscipline and swift actions against such transgressions, as
evidence that the Central Bank is anti-indigenisation.
10.2 It is not the intention of the Bank to reverse the gains of indigenisation
registered todate – anywhere in the economy and least of all, in the
financial sector.
10.3 Our proven support of and enthusiasm to have indigenous banks does
not, however, imply that we will cast a blind eye at indiscipline or
create a separate, softer banking code for one class of banks while
insisting on international best practices on others. Our view is that
being indigenous imposes an even greater responsibility, obligation
and duty towards one’s country; towards one’s depositors and
towards one’s economy, a shortcoming which a few of our brothers
and sisters running and or owning indigenous institutions seem to
have forgotten.
10.4 We thus, strongly reject the notion that tries to equate indigenisation
with unsound corporate culture, cosmetic management, technical
mismanagement and fraud. Bank insolvency brings with it
consequences that go beyond the pockets of management, Board,
shareholders and depositors. Insolvent and badly run institutions are a
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cancer to society in which they operate and we all know what a
cancerous part of the body can do to the rest, if not cured.
10.5 Events of the last few months have demonstrated vividly the
fatality to the whole economy and depositors of creating
indigenous institutions based on falsehood declarations,
appeasement and outright blackmail.
10.6 As monetary authorities, let it be known that we will not be swayed
from the course we have chosen to follow and the message to my
indigenous colleagues in the Banking Sector is please “shape-up to
international standards or pack-up”.
10.7 Time for short-cuts or intimidation is gone and gone for good.
Our country and its people expect nothing less than honesty,
uprightness and accountability from those to whom they entrust
their hard-earned savings and to this end, no amount of emotional
weeping will persuade us to compromise standards we have set for
the sector and its players.
11. ROLE OF EXTERNAL AUDITORS
11.1 Under the on-going enhancement of greater accountability and good
corporate governance, the Reserve Bank will formalize working
relationships with financial institutions’ external auditors in line with
international best practice.
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11.2 The current challenges being faced in the financial sector have
revealed glaring instances of creative accounting by banking
institutions which passed the test of external auditors.
11.3 Closer cooperation between the Bank and the audit firms in seen as an
indispensable requirement for success of the cleanup process.
12 MANAGEMENT OF CAPITAL
12.1 The Bank has also been disturbed by imprudent capital management
at some institutions where the bulk of capital is tied up in assets that
can not be easily liquidated.
12.2 The Reserve Bank wishes to once again remind the market that
capital has to be seen as an important fall back position to each
operation, requiring that it be kept in a form that can easily be
transformed into liquid assets.
12.3 As a guideline, the Reserve Bank is now insisting on a maximum
threshold of 25% in respect of the proportion of fixed assts to total
balance sheet size.
13. LICENSING FRAMEWORK
13.1 The Reserve Bank has noted with great concern that some newly
licensed banks have been operating with no real capital but merely
book entries or borrowed funds.
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13.2 With immediate effect, the Reserve Bank will now require promoters
of new banking institutions to deposit their start-up capital with the
Reserve Bank, whilst valuation of their project proposal is underway.
13.3 The Reserve Bank will rigorously evaluate the capacity of promoters
and their ability to provide additional capital before the granting of a
license is done.
14. ASSET MANAGEMENT COMPANIES
14.1 The Reserve Bank assumed the role of regulator of asset management
companies with effect from 1 January 2004.
14.2 As at 31 March 2004, the Reserve Bank had received 57 applications
for registration as asset management companies.
14.3 For the majority of the applications, it has been noted that the
information submitted fell far short of what is required in terms of the
minimum guidelines sent out to the market.
14.4 Because of this, only two applicants have been duly licensed, with one
application rejected.
14.5 It is, therefore, important that applicants fully comply with the
minimum requirements so as to expedite the appraisal process.
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15. MICROFINANCE INSTITUTIONS
15.1 The reserve Bank has also assumed the role of regulator of
microfinance institutions with effect from January 2004.
15.2 More than 700 application forms have been collected for license
renewals as well as start-ups.
15.3 By the 31st of March 2004, a total of 50 duly completed application
forms had been submitted to the Reserve Bank and were at various
stages of the appraisal process.
16. OTHER SECTORAL REVIEWS AND INTERVENTIONS
Gross National Product (GDP)
16.1 There is agreement among all stakeholders that the performance of
our key productive sectors over the past few years has been
constrained by several factors outlined in my Maiden Monetary Policy
Statement of 18 December, 2003.
16.2 Against this background, overall GDP shrunk by a cumulative 30%
over the period 2000-2003, threatening to reverse the gains from
comprehensive economic programs that Government has implemented
over the past two decades.
16.3 It is for this reason that fiscal and monetary policy priorities are
attaching great importance on bringing a quick turnaround in the
country’s productive sectors.
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17. AGRICULTURE
17.1 Agriculture remains the backbone of the Zimbabwean economy as it
pulls strong downstream linkages with manufacturing and other
key productive sectors, both as supplier and consumer of raw
materials.
17.2 Between 2001 and 2003, production in agriculture, hunting and
fishing declined by a cumulative 26%, undermining the country’s
resolve to be self sufficient on food security.
17.3 Underperformance in agriculture exerts pressure on the country’s
foreign exchange resources through grain imports to meet internal
deficits.
17.4 As indeed a proud Nation, we need to rebuild our food reserves
and consolidate on the historic Land Reform Program, one of
whose principal objectives was to spread land ownership to the
majority of Zimbabweans, and in the process, help to alleviate
poverty, through growth and development.
17.5 Major constraints facing our agriculture today, were adequately
captured in the Utete Presidential Land Audit Commission Report
of 2003 and the majority of them have been the subject of continuous
debate and attention within and outside Government circles, and I do
not wish to repeat them in this Review.
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18. TURNAROUND RESPONSE
18.1 Regaining momentum in agriculture requires adoption of a dedicated
program of action that confronts those identified hurdles head-on.
18.2 His Excellency the President, Cde R. G. Mugabe, in various
speeches and addresses to the Nation, has spoken about the need
to deal decisively and conclusively with these constraints inorder to
fully realise the benefit of our Agrarian Reform Program.
18.3 As part of the turnaround process, the Reserve Bank is supporting
farmers under the following intervention entry points:
(a) Working capital, equipment and infrastructure financing under the
productive sector facility. Agriculture has benefited to the tune of
Z$522.2 billion or 36.8% of total disbursements under the
concessional financing facility between January and March 2004.
An additional Z$150 billion has also been ring-fenced from the
productive sector facility to finance the targeted 2004 winter
wheat, and barley program.
(b) As Monetary Authorities however, we remain worried that the
Nation runs the risk of missing critical land preparation, planting
and/or seed-bed preparation timetables for our winter cereal crop
production and for irrigated tobacco preparations unless all
stakeholders charged with this responsibility collectively move with
speed to source and provide farmers with tillage power and/or inputs.
We believe that would it be a tragedy of enormous proportions if we
fail to turnaround our economy on the back of a promising year in as
far as the weather is concerned.
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(c) As Monetary Authorities, we stand ready to provide through
appropriate channels funds to meet well thought out programs to
regain lost ground on the production front.
(d) In view of observed constraints associated with giving money for
inputs directly to some farmers who have found themselves tempted
to use it for other purposes distant from agriculture, the Reserve
Bank will from now onwards require banking institutions to disburse
support funds directly to input providers, with ARDA, GMB and
others designated by the State assuming a distributive role directly to
the farmer(s) concerned.
(e) Furthermore, the coming months will seek to see the proper
accounting and recovery of the Z$60 billion funds disbursed to
farmers last year through the Land Bank Capital. Important lessons
should emerge from that audit exercise.
(f) The Bank has also given birth to a vibrant market for used agricultural
equipment to ensure full utilization of existing capacity and, hence
reduce pressure on the limited foreign exchange resources which
could potentially arise from the need to import equipment.
i. The used equipment scheme, which is being administered by
private sector experts from Astra Corporation’s FARMEC
Division and the Agricultural Research and Extensions Services
(AREX), had purchased equipment worth Z$12.69 billion by
the 6th of April 2004.
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ii. The equipment scheme also seeks to increase mechanization
and production levels on the resettled farms.
iii. Beneficiaries of the equipment will be identified by AREX,
followed by equipment deployment mechanisms based on lease
hire arrangements and declared genuine need for such
equipment at each farm.
(g) Through the External Loans Coordinating Committee, a total of
US$118 million offshore facilities, including US$9 million under the
Memorandum of Deposit (MOD) arrangement, have been approved
for the financing of this year’s tobacco purchases on the auction
floors.
(h) Pre-financing of tobacco is beneficial to the economy as it brings
forward inflows of foreign exchange well before the actual
tobacco is exported.
(e) Contract Growing of Tobacco
(i) Experiences in other parts of the world, such as Brazil, testify to the
positive impact that contract growing arrangements can have on
agricultural productivity in general, and on tobacco yields in
particular.
(ii) This notwithstanding, as Monetary Authorities, we have noted with
concern the sharp emergence of “briefcase” operators who are largely
exploiting farmers under the guise of contract growing schemes.
29
(iii) Observed limitations on these arrangements are that:
(a) Some sponsors in the contract growing schemes have tended to leave
farmers hanging in desperation by partially meeting farmers’
working capital requirements, mostly for tillage and seed
procurement, without carrying the support through the entire cycle
of the crop, and yet are quick to claim ownership of the harvested
crop.
(b) Direct abuse of the concessional financing facilities has also been
noted, where some contractors purport to be the providers of our 30%
productive sector money but would want to levy additional charges to
contracted growers, and ultimately claim ownership of the crop.
(iv) As Monetary Authorities, we urge the relevant farmer representative
bodies, and the Ministry of Agriculture and Rural Development to
educate farmers on the operational modalities of viable and mutually
beneficial contract growing schemes.
(v) We also wish to remind and guide the market that contractors can be
one or a combination of the following two forms:
(a) Technical contractors, who provide farmers with technical assistance
and know-how; and/or
(b) Financing contractors, who cover the working capital requirements of
the farmers.
30
(vi) To further enhance productivity and to promote optimal generation of
foreign exchange earnings from tobacco, the Reserve Bank has taken
the following policy positions which will apply with immediate effect:
(a) Contractors for tobacco growing should show commitment by
employing their own funds when supporting farmers.
(b) A contractor can only buy tobacco to the extent of the financial
support they have given to the growers.
(c) At least 80% of the tobacco crop to be bought under contract growing
schemes should be backed by offshore lines of credit to ensure that
the country benefits from pre-export inflows of foreign exchange.
Contractors should, therefore, twin with established merchants
who have access to such offshore lines of credit.
18.4 Food security being a strategic priority to the country, the Reserve
Bank is playing an active role in the targeted winter wheat, barley and
tobacco program for 2004/05.
18.5 Targeted hectarage set by the Cabinet Action Committee for the
winter wheat program is 100 000 ha, with an anticipated output
totalling 420 000 tonnes. As Monetary Authorities, we stand ready
to support this program as part of ensuring food self-sufficiency
and we urge banks to be time sensitive to applications from our
farmers as the weather waits for no man.
18.6 Our interventions will need to be complemented by structural reforms
in the marketing arrangements for agricultural products, as well
31
as ensuring greater capacity at the Grain Marketing Board (GMB) to
effectively interface with farmers in ways that timeously meet
their cash-flow requirements. We take note and are pleased with
recent initiatives by the GMB in this direction.
18.7 Continued impartial cooperation and swift intervention by the law
enforcement arms of Government to thwart any illegal activities on
farms involving the destruction and/or theft of greenhouse
structures, tobacco barns and curing facilities, irrigation
infrastructures, cattle/crop theft and other forms of vandalism,
would also be a critical factor in stabilizing farm productive activities
and, hence, set a solid base for a quick turnaround in agricultural
performance. We are ready to play our part with determination.
18.8 Crops such as cotton, tea, coffee sorghum, sunflower, soya beans,
paprika, flowers and other horticultural products, among others, have
been neglected in terms of their full potential and capacity to generate
foreign currency for the country. We pledge our support for farmers
in these fields and commit our attention to their expanded and more
rewarding welfare this coming season and beyond. We urge the
financial sector to invigorate their support in these areas.
19 MANUFACTURING
19.1 Major challenges facing the manufacturing sector continue to
revolve around viability issues, capacity underutilization,
unsustainable power charges and foreign currency shortages,
among others. All these shortcomings are being addressed
consciously.
32
19.2 As part of a conscious strategy to address viability concerns of
this sector, manufacturing has received the highest allotment of
the concessional financing facility.
19.3 As of end of March 2004, manufacturing accounted for Z$683.7
billion or 48.1% of the total disbursements since the beginning of
this year.
19.4 The concessional productive facility is expected to continue to
ameliorate cash flow difficulties for the sector and help sustain
current employment levels.
19.5 The establishment of the foreign exchange auction system on 12
January 2004, has also brought relative certainty on the
availability of foreign exchange, albeit in limited amounts, to
industry.
33
19.6 Weighted Contribution of Key Manufacturing Sub-Sectors
Weight%
Metals & Metal Products 22.1
Drinks, Tobacco & Beverages 19.5
Foodstuffs 13.5
Chemical & Petroleum Products 11.5
Textiles & Ginning 11.0
Clothing & footwear 6.8
Paper Printing & Publishing 6.4
Transport Equipment 3.0
Wood & Furniture 3.1
Non metallic mineral products 2.3
Other Manufactured Goods 0.8
Total 100
20. MINING SECTOR
20.1 Mining remains an important industry to the national economy,
not only in terms of contribution to GDP and employment, but
also foreign exchange generation.
20.2 Major Mineral Exports
Mineral Proportion to total mineral exports
Gold 53.7%
Asbestos 13.3%
Nickel 10.6%
Platinum 4.9%
Other 17.5%
20.3 Constraints for the Mining Sector revolve around viability issues
due to the blend foreign exchange take-home rate, rising production
34
costs, inadequate foreign currency, high labour costs and rising prices
of consumable inputs.
20.4 To lay the ground for a quick turnaround, the mining sector has
accessed Z$115.8 billion from the Productive Sector Facility which is
about 8% of the total disbursements.
20.5 Further consolidation of the Mining Fiscal Regime to complement
other incentives for this key industry is strongly recommended to
Fiscal and Mining Industry Authorities in Government.
21 TOURISM SECTOR
21.1 Tourism receipts rose by 40.4% from US$11.4 million in 2002 to
US$16 million in 2003.
21.2 Reflecting improving tourist perceptions on Zimbabwe as a safe and
attractive destination, the number of tourist arrivals has been on a
marked upward trend since 2001.
21.3 The number of tourist arrivals increased by 47.3% from 739 284 in
2002 to 1 089 256 in 2003 due to continued improvement in
international sentiment on the Country.
21.4 Tourist Arrivals into Zimbabwe (absolute numbers)
Year Number of Tourist Arrivals
2001 1 456 948
2002 739 284
2003 1 089 256
35
21.5 The Tourism sector also benefited from the Productive Sector Facility,
accessing Z$15.7 billion during the first quarter of 2004.
22. PUBLIC ENTERPRISES
22.1 The country’s major parastatals, namely Grain Marketing Board
(GMB), NOCZIM, Wankie Colliery, ZISCO, National Railways of
Zimbabwe (NRZ), Air Zimbabwe, ZBC and ZESA have also
continued to face persistent economic challenges, including:
(a) Cash-flow deficiencies, largely caused by operational constraints and
debt overhang in a high interest rate environment.
(b) Shortages of foreign currency, which have constrained importation of
essential inputs and raw materials.
(c) Limited access to external lines of credit.
(d) Deterioration of infrastructure due to limited resources for
maintenance; and
(e) Limited new investment, among others.
22.2 Successful recovery of the national economy requires that we
articulate and implement eloquent reform programs to ensure
stable and uninterrupted service delivery by these public utilities.
36
22.3 It is important that the following measures form part of the revival
process:
23. GRAIN MARKETING BOARD (GMB)
23.1 Bolstering capacity of the GMB so as to be able to timeously interface
with farmers, ensuring that payments meet the desired pre-planting
cash-flow cycles of farmers. The GMB infrastructures around the
country need to be fully utilised more than ever before.
23.2 Timely announcement of marketing prices for key crops to enable
farmers to plan accordingly as well as increase certainty in
agriculture.
23.3 Application of an aggressive program to rebuild national stocks for
strategic grain.
24. NATIONAL RAILWAYS OF ZIMBABWE (NRZ)
24.1 Capacity constraints at the National Railways of Zimbabwe (NRZ)
cannot be allowed to deteriorate further if the country’s
productive sectors are to register a quick turnaround in response
to the supportive measures being implemented.
24.2 Bulk deliveries such as coal, tobacco, minerals, cotton lint, sugar,
maize and fuel have been directly affected by the capacity constraints
at the NRZ.
37
24.3 Thus, the challenges facing NRZ are not only affecting passenger
transportation but also movement of merchandise within the country,
as well as shipment of exports and imports. The situation is made
worse by the fact that road transport for bulk consignments is
relatively more costly to producers.
24.4 NRZ cash-flow problems that have been experienced over the past
few years, have culminated in the deterioration in the availability of
locomotives and the condition of other rail infrastructure.
24.5 The net effect of the decline in capacity has been the parastatals’
failure to move business on offer and hence a further deterioration of
the cashflow and revenue position.
24.6 Based on available business NRZ requires around 108 mainline
locomotives (DE10 class) compared to about 60 currently available.
24.7 DE10 Class Locomotive Availability Year 1999 2000 2001 2002 2003
Available for use 126 112 99 83 60
Requirement 109 118 120 107 108
(Shortfall)/Surplus 17 (6) (21) (24) (48)
Source: NRZ
24.8 Unavailability of locomotives has thus seriously impacted on the
company’s ability to return foreign wagons to the owning railway
administrations especially to Spoornet (South Africa Railways). This
limitation is resulting in NRZ paying monthly interchange costs of
38
around R6 million to Spoornet, effectively eating into the country’s
limited foreign exchange resources.
24.9 The Reserve Bank, as Monetary Authorities seeks to call upon the
Ministry of Transport and Communication to support efforts on
stimulating the productive sector by urgently putting in place a rescue
package for NRZ. We record encouragement on the back of current
initiatives being pursued by both the Ministry and NRZ management
itself.
24.10 The Reserve Bank of Zimbabwe is ready to work with the Ministry in
resolving this strategic national utility.
24.11 To this end, we plan to allocate foreign currency resources for the
refurbishment and acquisition of additional locomotives for NRZ
between now and end of year depending on forex availability.
24.12 It will also be critical that management at NRZ also focus on
enhancing operational efficiencies as part of a comprehensive
framework for long-term recovery.
25. ENERGY
25.1 Successful economic revival also requires that the country vigorously
pursues measures that ensure a strong and reliable energy supply base,
particularly on electricity, coal and fuel. There is need to synchronise
the management of these important energy activities without whose
joint and collaborative efficiency our efforts to turnaround the
economy will yield zero results.
39
26. NATIONAL OIL COMPANY OF ZIMBABWE (NOCZIM)
26.1 The liberalization of fuel procurement has brought considerable relief
to the pressure on NOCZIM to meet basic market demand for fuel.
26.2 There is, however, a continued strategic importance for NOCZIM to
re-build its capacity in fuel procurement.
26.3 Deliberate efforts are being made in restoring suppliers’
confidence and to maintain trading relationships with NOCZIM.
26.4 To this effect, the Reserve Bank has been in the forefront of
supporting the Ministry in negotiations with international creditors
with outstanding NOCZIM payments for fuel. These joint efforts are
expected to restore the creditworthiness of the strategic oil company
in international markets for the benefit of our economy.
26.5 The Reserve Bank is also pleased to share with stakeholders that
through tireless negotiations with international partners, NOCZIM has
entered into a joint venture investment to set up bulk oil storages and
a marketing arm in Mozambique. This investment is expected to
further stabilize the country’s fuel situation over the medium to
long-term.
26.6 Fuel Importation
(a) Stability in fuel availability to the productive sectors and the general
public is an indispensable requirement for successful economic
revival.
40
(b) In an effort to rationalize foreign exchange resources available, on 8
April, 2004, Authorized Dealers were directed to ensure that Direct
Fuel Importers (DFIs) utilize their FCA balances for own-use fuel
importation needs, so as to enable licensed fuel importers who import
to sale to the public, to be accommodated on the foreign exchange
auction.
(c) The Reserve Bank impresses upon Authorized Dealers to exercise
attentive scrutiny when processing foreign exchange bids for fuel
imports before passing them to the foreign exchange auction.
27. ZIMBABWE ELECTRICITY SUPPLY AUTHORITY (ZESA)
27.1 Stability in electricity supply is a critical requirement for a successful
economic turnaround program.
27.2 Ageing of generating equipment, as well as growing demand for
electricity has meant that Zimbabwe continues to be a net importer of
power to meet demand.
27.3 Against the background of foreign exchange shortages, ZESA has,
over the past few years experienced a build-up of foreign payment
arrears in respect of suppliers’ credits.
27.4 In an effort to steer the economy’s productive sectors onto a faster
growth path, particularly exports, it has become necessary that an
informed review of the performance of the dispensation that was
41
given to ZESA to bill exporters in foreign currency at source be
carried out with a view to making the arrangements more effective,
efficient and at the same time more friendly to exporters from a
logistics and uniformity point of view.
27.5 We are pleased with the understanding, cooperation and sensitivity
which ZESA has displayed over recent negotiations with consumers
which has led to significant reductions in the tariff structures without
impacting too adversely on its operational plans.
27.6 We are happy to have played a modest but supportive role to ZESA
and the consumers in our quest to balance the viability aspirations of
all parties concerned. The cooperation between us and ZESA is a
source of encouragement.
27.7 It is now thus critical that, as part of commitment to the turnaround
program, producers and providers of other goods and services reflect
these energy adjustments in their pricing structures so as to benefit the
economy through favorable trickle down effects on inflation.
28. HWANGE COLLIERY
28.1 Operational constraints, accentuated by ageing equipment and
limited foreign exchange to import spare parts have significantly
caused shortages of coal to the productive sectors.
28.2 As a result, a number of industrial and agricultural processes
requiring coal as an important source of energy are being
adversely affected.
42
28.3 Unavailability of adequate coal supplies is also limiting the
generation of electricity at Hwange Thermal Power Station,
further hampering the economic turnaround program.
28.4 The Reserve Bank, in close consultation with the Ministry of Energy
and Power Development and ZESA will put together a financing
package to enable participation by ZESA in coal mining activities to
enhance the strategic input-output synergies of coal production and
power generation.
28.5 The export incentives enunciated in this Statement are also expected
to increased foreign exchange inflows on the auction, which should
give the Reserve Bank leg-room to accommodate foreign exchange
requirements of Hwange Colliery to smoothen production during the
course of the year.
29. TELECOMMUNICATIONS
29.1 An effective telecommunication network is an important ingredient to
sustainable economic production.
29.2 To this end, greater efforts will be put on expanding and strengthening
this sector.
29.3 This would broaden the benefits the economy is already deriving from
wider participation in the provision of communication services,
following the liberalization of this sector by Government.
43
30. EXPORT PROMOTION: BACKGROUND
30.1 Government, through the 2004 Fiscal Budget and the State of the
Nation Address by His Excellency President R. G. Mugabe,
acknowledged the important role that our exporters play in the
economy and alluded to the need for this sector to be promoted in
order to generate more foreign currency for the country.
30.2 The December 2003 Monetary Policy Statement sought to achieve the
same through complementary policies.
30.3 Before coming to the new measures, it is important to point out that
Japan, Malaysia and other South East Asian countries once faced
similar foreign currency generation challenges if not worse than
our own situation.
30.4 But through carefully planned and executed policies, they emerged
stronger from their weaknesses than before. Zimbabwe can do the
same.
30.5 Smarting from devastation after the Second World War, Japanese
economic writers point out that “Japan succeeded beyond
expectations in developing and executing an export-driven, high-
growth economy on the back of its highly educated and dedicated
population. It soon became the world’s first “economic” miracle
after the Second World War despite its limited land resources,
zero mineral base and none of the other resources we take for
granted here.
44
30.6 The Economists point out that the world got to know post-war Japan
through its exports of electronics, cars and other high value-added
products. World policy makers also got to know of Japan through
its trade surpluses.1”
30.7 The same is the status now reached by China.
30.8 In Zimbabwe, we have land in abundance, are well endowed with a
variety of mineral deposits, wonderful climate and tourist
destinations, a developed and now disciplined financial sector and
functioning telecoms infrastructure, a capable manufacturing
sector and a highly educated population, all key ingredients for a
successful export-led growth strategy
30.9 One third of our population is “export intellectual property” which can
blend with those back home to make this country a jewel of Africa
that it deserves to be. Zimbabweans in the diaspora will always
remain Zimbabweans, with Zimbabwean roots, tastes, aspirations and
love for their country. As Monetary Authorities we cherish their
temporary existence wherever they are and invite them to contribute
ideas to the turnaround of this economy.
30.10 The world should get to know Zimbabwe better through our
agricultural and mineral exports, through value-adding manufacturing,
through visits to our tourist destinations and through the hard work
and dedication of our brothers and sisters in the diaspora..
30.11 Measures presented below are meant to kick-start and sustain this
drive towards foreign currency self-sufficiency.
45
30.12 Whereas Japan and other successful countries now have to “import
first in order to export”, the stage at which we are as a country
requires that we “export first in order to import”.
30.13 For us to succeed with this “export-first-and-import-later”
philosophy, we need as a country to have a PARADIGM Shift.
30.14 This paradigm shift is necessary given what has taken place in the
area of land reform, tourism, manufacturing, and other sectors of the
economy.
30.15 We have to make do with the post-land reform Zimbabwe of the new
millennium, a Zimbabwe that finds itself without many external
sources of foreign exchange support and a Zimbabwe which has to
rely primarily on itself first before looking for outside help.
30.16 If we had lines of credit in abundance we could afford to play hide
and seek games with our exporters, with our farmers, our tourism
players, manufacturers, miners and the financial sector but then, we
do not. This is what I mean by the need for a paradigm shift.
30.17 It is against this background that the following measures are being
implemented for the benefit of exporters.
46
31 EXPORT SUPPORT SCHEMES
31.1 The export-support measures presented in this Monetary Policy
Statement have been stress-tested for their fiscal neutrality.
31.2 As Monetary Authorities, we are thus convinced that the incentives
we are putting in place will not have adverse effects on the fiscus, as
the support framework has largely been guided by expected self-
financing export supply response, as well as beneficial exchange rate
effects on fiscal revenues.
31.3 Details of this fiscal neutrality of the supportive measures were shared
and discussed with relevant Authorities in the Ministry of Finance and
Economic Development.
CARROT AND STICK EXPORT RETENTIONS SCHEME
31.4 Advance Payments (a) In order to encourage exporters to timely acquit their export proceeds,
for all advance payments or prepayment proceeds, exporters are
currently allowed to retain 80% in their FCAs and the remaining
20% is sold to the Government at Z$824 per US dollar.
(b) In light of the significant impact on productivity of early repatriation
of foreign exchange, the carrot and stick incentive on advance
payments or prepayments has been enhanced to allow exporters
to retain 80% in their FCAs and to sell 20% at the ruling auction
rate.
47
(c) These retention levels will also apply to Tourism operators and
will enable use of a single rate and certainly address accounting
and billing problems currently being experienced in the tourism
industry, especially with regard to use of international credit cards.
31.5 BULK AND CONSIGNMENT EXPORTS
(a) Currently, in terms of Exchange Control Directive RE: 511, dated 24
December 2003, all companies exporting in bulk or on a
consignment basis and acquit their Form CD1s beyond 120 days,
are required to surrender 100% of their export receipts, of which 75%
is immediately sold to the auction and 25% surrendered to
Government at the rate of Z$824 against the US dollar.
(b) In order to recognize logistical constraints inherent in bulk shipments
and consignment exports and not to prejudice such exporters for
whom shipping delays are inevitable, exporters of approved
extensions beyond 120 days will be allowed to retain 30% (as
opposed to the current 0%) in their FCA’s, while 45% is required
to be immediately sold to the auction at the ruling auction rate
and 25% surrendered to Government at the rate of Z$824 against
the US dollar.
48
31.6 The Carrot and Stick Approach Scheme Will Now Be As Follows:
Form CD1, TR1,
TR2, CD3
Acquittal Period
(Days)
FCAs
Retention
Sold for
Government
Use (at
Z$824/US$)
Sold to Auction
(At ruling Auction
rate)
Prepayments 80% 0% 20%
1-30 70% 25% 5%
31-60 65% 25% 10%
61-90 55% 25% 20%
Exchange Control Approved Extensions
91-100 50% 25% 25%
101-120 40% 25% 35%
121 and above 30% 25% 45%
15% FOB Export Incentive Scheme
31.7 In an effort to maximise the attractiveness and effectiveness of this
scheme to exporters, following the implementation of the on-line
Form CD1 Computerised System at the Reserve Bank, measures have
been put in place to ensure that there are no delays in the issuance of
duty free certificates.
31.8 In this regard, the turn-around time for exporter’s applications to
Exchange Control relating to this and other export incentive schemes
has been reduced from 14 days to 5 working days.
31.9 In addition, for exporters to get immediate value from this Export
Incentive Scheme, the duty free certificates, which are tradable, will
49
now be extended to cover any payments to ZIMRA.
31.10 Currently the 15% FOB incentive scheme is based on the 75%/25%
blend exchange rate.
31.11 To further enhance exporter viability, the 15% FOB value will be
based on the ruling auction rate.
31.12 Waiver on Surrender Requirements on Incremental Exports
(a) Currently, the incremental value is being calculated on a quarterly
basis. For exporters to get a much faster realisation of the benefit of
the waiver on the surrender requirements on incremental exports and
to enhance its effectiveness to exporters demonstrating a progressive
growth in export volumes, the incremental value of exports will now
be calculated on a monthly basis.
31.13 Access to the Auction
(a) Exporters and non-exporters are currently accessing foreign currency
on the Auction system twice weekly and the amount which has been
on offer has to date averaged US$16 million per week. We remain
alert to the need to review both the frequency of auctions and the
amount available as inflows improve in line with the broad measures
herein contained.
50
31.14 Memorandum of Deposit (MOD)
(a) Currently the MOD scheme, administered by the Reserve Bank,
provides pre and post shipment financial assistance to tobacco
merchants/buyers only.
(b) In order to provide the necessary financial support to other export
sectors, the MOD scheme will now be extended to other exportable
commodities where there are confirmed export orders. Offshore
funding under this scheme, whose cash covered security is provided
by the Reserve Bank, is reasonably priced and enhances exporter
viability.
Flow Chart For MOD Facility
Offshore Bank A 1. Provider of Lending. 2. Disburse into RBZ correspondent bank.
Offshore Bank B (RBZ MOD Corresponded Bank: Holds Foreign Exchange Deposit until exporter performs)
Reserve Bank of Zimbab1. Receives offshore lendinencumbered reserves offshperforms. 2. Disburses ZWD against auction rate to Exporter agexport orders.
Once exporter has paid into offshore bank RBZ can utilise offshore deposit.
III
Exporter1. Arranges offshore financing facility. 2. Receives the equivalent of offshore loan in ZWD at auction rate on the basis of confirmed orders. 3. Exports and channels export proceeds to pay off offshore loan.
EXPORTS
I
IV
Export proceeds pay off loan
II
ZWD 75% at auction rate & 25% @ Z$824.
V
we g and holds as ore until exporter
offshore loan at ainst confirmed
VI
Foreign Exchan
51
31.15 Measures will be put in place to ensure that the impact on money
supply growth is kept at a minimum.
31.16 Exporters’ post shipment foreign currency bills
(a) For those exporters who have no access to offshore lines of credit, and
hence can not access the MOD incentive, the Reserve Bank has
introduced post shipment foreign exchange bills whose features are as
follows:
• The bills will be issued on the basis of actual export shipments.
• The bills would be issued on 50% of the free on board (FOB) value of
shipments.
• The maximum tenor of the bills will be 90 days.
• The interest rate on the bills will be LIBOR + 5 percentage points.
(b) The operational modalities of this incentive would be as follows:
• Once an exporter has a confirmed export order, they apply for
the bills through their bankers.
• On shipment, and upon meeting of the normal credit requirements of
banks, the exporter draws the bills up to 50% of the FOB value on the
form CD1 and CD3 at the ruling auction rate.
52
• The Reserve Bank would disburse the Zimbabwe dollar equivalent to
the exporter to meet post shipment working capital requirements.
• On acquittal of the CD1s and CD3, after conforming to the existing
surrender requirements, the exporter would liquidate the bills –
principal plus interest.
31.17 Detailed operational modalities of this facility will be sent out to
Authorised Dealers and the market before the 30th of April 2004.
Flow Chart for exporters post shipment foreign exchange bills
25% @ auction rate Point A 50% FCA Exporter gets confirmed Orders 25% @ Z$824
Point B Point E Exporter applies through own bank After at most 90 days f or post shipment bills Exporter acquits CD1s and p ays off loan. Point C Point D Exporter ships exports RBZ disburses 50% of FOB value on CD1 @ auction rate. Loan at Libor + 5 percent points
31.18 Tobacco support price
(a) The MOD facility and the post shipment foreign exchange bills will
benefit direct exporters. In order to support tobacco growers who
export through the intermediation of tobacco merchants and
processors, the Bank has introduced a tobacco support price of
Z$750.00 (seven hundred and fifty Zimbabwe dollars) per kg.
53
(b) This facility, which will be administered by the Reserve Bank, would
be financed through incremental fiscal revenue from the increase
in import duty arising from use of the auction rate, complemented
by ring-fenced resources from cash flows arsing from repayments
under the concessional financing facility.
31.19 Operational modalities of this facility will be sent out to the market
within two days time from date of this announcement.
31.20 Reserve Bank Foreign Exchange Purchasing Centres
(a) In order to optimise foreign exchange inflows into the foreign
exchange pool, the Reserve Bank will soon open foreign exchange
purchasing centres at designated entry points into the country.
(b) I am pleased to report that a feasibility study for implementation
of this project has already been completed, and we are geared to
roll out the project not later than 30 June, 2004.
32. FORM CD1 NON-ACQUITALS
32.1 On two occasions, December 2003, and February 2004, the Reserve
Bank published a list of 320 companies whose form CD1 records at
Exchange Control indicated non-acquittals amounting to US$175
million.
54
32.2 Following this publication, and after intensive follow-ups with the
affected exporters, about 220 companies responded positively to the
Reserve Bank’s call for acquittal of overdue export receipts.
32.3 To date, from non-acquittals of US$175 million, a total of US$124
million (71%) has been fully accounted for, of which:
• US$89 million was on account of non-acquittals due to
administrative shortfalls, between exporter, receiving bank and
the Reserve Bank of Zimbabwe. The loopholes in this area
have been plugged to avoid repeat shortfalls.
• US$21 million was received by the Reserve Bank as foreign
currency cash regularising non-acquittals.
• US$14 million has been pledged by the affected exporters for
receipt as foreign currency cash by the 30th of April 2004.
32.4 Over 110 exporting companies with long outstanding export receipts
totalling US$36 million did not respond to the Reserve Bank’s call to
acquit their proceeds.
32.5 These cases are at various stages of prosecution.
32.6 As stakeholders, it is in our collective interest to move the economy
onto the recovery path through mutual cooperation. I therefore urge
exporters to ensure timely acquittal of their CD1s for our efforts
to bear fruits.
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33 MOBILISATION OF DIASPORA FUNDS
33.1 In the 2004 National Budget, Government recommended that the
country enhances foreign exchange availability through appropriate
instruments and structures to attract foreign exchange from
Zimbabweans in the Diaspora.
33.2 With a total estimate of around 3.4 million Zimbabweans in the
Diaspora, the opportunity to unlock considerable foreign
exchange inflows via this avenue is huge.
33.3 In order to tap into this contribution to national development by our
fellow Zimbabweans in the diaspora, the Reserve Bank has put in
place an effective, and secure administrative, operational and legal
framework for the mobilization of foreign currency from the
Diaspora.
33.4 Under the new arrangements, foreign currency remittances from the
Diaspora shall be channeled through formal channels of Money
Transfer Agencies that will be licensed in terms of the recently
gazetted Exchange Control (Money Transfer Agencies) Order 2004.
33.5 The new foreign currency mobilization framework allows
beneficiaries of such funds in Zimbabwe to receive payouts in
foreign currency cash, travelers cheques, bank drafts or local
currency at a diaspora floor price of Z$5 200.00 or the auction price
which ever is higher.
56
33.6 Money Transfer Agencies paying out in local currency shall be
doing so for and on behalf of the Currency Exchange and foreign
exchange mobilized through these arrangements shall be available
to the auction. These resources are expected to boost foreign
exchange supply to the auction and enable the financing of more
transactions.
33.7 In addition to offering a market related exchange rate through the
auction, or at the diaspora floor price, whichever is higher, the
new money transfer arrangements have an added advantage of having
been developed in line with existing international standards and
are guided by the need to ensure high-level security for remitted
funds, efficiency in transmission and convenience to both senders
and beneficiaries.
33.8 The Reserve Bank has already invited new and existing Money
Transfer Agencies to apply to Exchange Control to participate under
these new arrangements and as at 20 April, 2004, the following
Money Transfer Agencies (Institutions) had been licensed with more
applications still being considered for licensing:
• Standard Chartered Bank
• Stanbic Bank
• CFX Merchant Bank-Money Gram
• Barnfords Global Financial Services
• Fredex Financial Services (Pvt) Ltd
• Kingdom Bank (Currency King Money Transfer)
• TransAfric Money Transfer
• POSB
57
33.9 As an incentive for Zimbabweans in the Diaspora to send money
home, the Reserve Bank has waived the charging of commissions
by money transfer agencies. This means that for all foreign currency
remittances made through this facility, beneficiaries in Zimbabwe
will be paid the full amounts converted at the ruling auction rate
or at the diaspora floor price of Z$5 200/US$, which ever is
higher.
33.10 Other innovative telecom-based money transfer systems are in the
process of being developed and their introduction will be announced
in due course.
BROKERAGE FEES
33.10 For their brokerage services, money transfer agencies will be paid
agency fees of 1,5% for every unit of foreign currency delivered to the
Reserve Bank. This brokerage fee level will be reviewed at the end of
each quarter and a volume (value) incentive given to Money Transfer
Agencies based on the quarter’s cumulative transfers to the Reserve
Bank.
33.11 The current commission arrangements for Authorized Dealers
stands at 0.5% and is paid by the customer selling foreign exchange.
33.12 To enhance viability of authorized foreign currency dealers and level
the playing field with money transfer agencies, the Reserve Bank will
now pay Authorized Dealers (Banks) an additional 1% for every unit
of foreign currency delivered to the Reserve Bank.
58
33.13 The Reserve Bank strongly encourages both Authorized Dealers and
money transfer agencies to be more aggressive in marketing their
intermediary services.
PUBLIC AWARENESS CAMPAIGNS
33.14 In order to ensure public awareness, the Reserve Bank will shortly
conduct extensive road shows within the country and in those
countries where Zimbabweans are highly concentrated. To this end, I
wish to extend my sincere appreciation to those Zimbabweans in the
diaspora with whom I and my team have been in contact to craft this
safe and secure foreign currency mobilization program.
34 OPERATION OF FOREIGN CURRENCY ACCOUNTS (FCAS)
CORPORATE FCAS
34.1 Further to the review of the export support schemes detailed above,
and to enhance exporter viability, as well as, afford exporters adequate
time to plan for their import programs, the retention period for
Corporate FCA balances has been increased from the current 21 days
to 30 days (one full month) with immediate effect.
FCAs for Diplomatic Missions, NGOs and International
Organizations
34.2 In recognition of the significant contribution to the country’s
foreign exchange resources by members of international
59
organizations, such as diplomatic missions, and NGOS, the
Reserve Bank has created a dedicated banking facility for their
banking service requirements at the Reserve Bank, 80 Samora
Machel Avenue, Harare, effective on 22 April, 2004.
34.3 In this connection, those diplomatic missions NGOs and
international organisations willing to benefit from the afore-
mentioned arrangements will be allowed to open, operate and hold
foreign currency accounts directly with the Reserve Bank, at the
Reserve Bank premises.
34.4 Furthermore, to allow for flexibility and convenience in the operation
of these organisations’ FCAs, the daily foreign currency cash
withdrawal limit has been increased from US$500 to US$5000.
This is meant to cater for these organisations’ cash requirements to
finance local hotel expenses for their foreign visitors and their
regional activities.
34.5 In addition, these organisations and their employees will be allowed to
encash their personal cheques at the same Reserve Bank special
facility branch.
INDIVIDUAL FCAS
34.6 In order to encourage individuals to repatriate their foreign exchange
earnings held outside the country, those individuals who earn “free
funds” in terms of Exchange Control Regulations, Statutory
Instrument 109 of 1996, i.e. earnings from professional
consultancy services conducted outside Zimbabwe and foreign
60
currency denominated salaries for Zimbabweans working for
diplomatic missions and NGOs, can now be deposited into
individuals FCAs, which shall be exempt from the surrender
requirements.
34.7 Zimbabweans that are benefiting from foreign currency remittances
from their relatives in the Diaspora may also open individual FCAs
with similar terms and conditions.
34.8 In addition, small cross border traders exporting goods below the
Z$500 000 threshold for CD1 completion may also open such
accounts.
34.9 These measures are meant to ensure that Zimbabweans with foreign
currency holdings outside Zimbabwe may operate similar Individual
FCAs at home with no Exchange Control restrictions.
INWARD DIVIDEND REMITTANCES
34.10 In terms of current policy, dividend receipts are liquidated
immediately on receipt and the recipient does not benefit from the
foreign exchange earnings to utilise for own import requirements.
34.11 In this review, where the initial capital outlay for a cross-border
investment was funded from foreign currency sourced from the
local market, dividend income remitted into Zimbabwe shall first
payback the initial amount.
61
34.12 In this respect, such remittances are immediately liquidated 100% at
the ruling auction rate or the diaspora floor price, which ever is
higher, and the foreign exchange is available to the Currency
Exchange for auctioning.
34.13 In cases where dividend remittances have fully paid-back the initial
capital outlay, such remittances shall be exempt from the immediate
surrender requirements and can be deposited 100% into the
beneficiary’s FCA.
34.14 In the case of dividends accruing to individuals, FCA conditions for
individual holdings will apply.
34.15 Where the dividends are due to corporates, conditions for corporate
FCAs will apply.
35 EXCHANGE RATE MANAGEMENT
35.1 Exchange rate management remains a critical component of
monetary policy management.
35.2 With effect from 12 January 2004, the Reserve Bank introduced the
managed foreign exchange auction system that has brought
considerable sanity in the foreign exchange market.
35.3 The average auction exchange rate, which as of auction number 27 of
15 April 2004 stood at Z$4 619.24 per US dollar has brought relief to
62
exporters, compared to the pre-adjustment rate of Z$824 against the
US dollar.
35.4 The Reserve Bank is fully aware of exporters’ wish that we allow for
100% of their export proceeds to be converted at the ruling auction
rate.
35.5 As Monetary Authorities, we work to balance the needs for
exporter viability, fiscal sustainability and inflation control,
among many other competing objectives.
35.6 It is for this reason that we have sought to enhance exporter viability
through the above measures, which took into account various
submissions from exporters.
35.7 As Monetary Authorities, we remain firm on our commitment to
recognize the strategic importance of exports in the economy.
35.8 With immediate effect, the following exchange rate management
framework will apply:
(a) The 25% surrender requirement at Z$824 against the US dollar
will remain, in force to meet strategic Government payments.
(b) Exporters would supply funds to the auction at the auction exchange
rate or a suppliers’ floor price, which ever is higher. The export floor
price has been set at Z$5 200 against the US dollar, and would be
reviewed periodically, taking into account changes in inflation
differentials between the country and major trading partners. To the
63
extent that inflation is expected to decline, our expectations are
that this floor price will be reviewed downwards within a period
of six months from 1 May, 2004 to reflect appreciation in our
currency by then.
(c) Importers will continue to access foreign exchange through the
bidding process under the auction system.
35.9 The implicit subsidy to exporters would be met through various fiscal
neutral measures related to the use of the Auction rate for duty
purposes.
36. FOREIGN EXCHANGE FLOWS UNDER THE AUCTION SYSTEM
36.1 Under the managed auction exchange rate system, the 27 auctions to
15 April 2004 saw a total of US$192.9 million allocated mainly to
productive sectors of the economy.
36.2 Compared against official flows registered in 2003, the performance
of the auction system over the period 12 January 2004, to 15 April
2004, surpassed that achieved over the entire twelve months during
2003.
64
Table 1: Foreign Exchange Inflows in 2003(USD Million)
2003 Month
Gold 50% Govt Other Total
JANUARY 14.9 2.5 4.9 22.3 FEBRUARY 14.4 2.3 4.1 20.8 MARCH 9.7 5.8 4.5 20.0 APRIL 4.9 3.2 17.6 25.7 MAY 25.2 3.1 10.7 39.0 JUNE 11.0 2.2 19.7 32.9 JULY 15.2 7.2 17.9 40.3 AUGUST 10.8 6.7 5.4 22.9 SEPTEMBER 11.6 1.2 13.4 26.2 OCTOBER 10.9 3.8 0.5 15.2 NOVEMBER 5.8 0.7 5.2 11.7 DECEMBER 17.9 1.8 5.0 24.7
TOTAL
152.3
40.5
108.9 301.7
Table 2: Foreign Exchange Inflows: January-1 April 2004 (USD Million)
Period 2004
Gold
25% to Govt.
Auction Funds
FCA
Liquidation
Pre-Auction
Receipts
Total
January
25.3
10.3
25.6
0.0
24.8
86.0
February
23.9
14.1
47.5
9.9
0.0
95.4
March
18.1
20.9
72.5
13.5
24.3
149.3
15 April
11.8
9.4
27.9
3.8
0.0
52.9
Cumulative to Date
79.1
54.7
173.5
27.2
49.1
383.6
36.3 Under the auction system, payment for raw materials accounted for
the largest allocation, receiving US$73 million, or 37.8%; followed by
fuel, US$29.7 million, or 15.4%; and equipment and machinery,
US$20.5 million, or 10.6%; and spares US$17.3 million, or 9%.
65
36.4 These payments through the auction augmented the 50% corporates
are allowed to retain in their FCAs which also largely go towards
payment for critical inputs, as well as liquidation of offshore lines of
credit.
36.5 The various measures we have taken in this Policy Statement should
see the foreign exchange situation improve further, thereby reducing
inflationary supply side bottlenecks that have accounted for a
significant component of the country’s current high inflation.
37. VIABILITY OF THE GOLD INDUSTRY
37.1 Gold remains one of the country’s strategic resources, given its direct
positive impact on the foreign exchange reserves of the economy.
37.2 Over the past few years, different pricing and buying structures have
been implemented, with a view to enhancing viability of the gold
industry.
37.3 The existing arrangements are that:
(a) Small-scale producers deliver their gold at a maximum price of
Z$60 000.00 per gram.
(b) Large-scale producers sell 50% of their gold at the ruling
international prices and retain it FCAs, 25% at Z$824 per US
dollar, and the remaining 25% at the auction rate.
66
37.4 As Monetary Authorities and through appropriate consultations,
we have recognized the attendant distortions in this arrangement,
as it promotes rent seeking behavior and arbitrage between large
scale and small scale productive sectors.
37.5 Thus, to enhance viability of the gold industry and remove
unnecessary price distortions, the following structure has been put in
place with immediate effect.
(a) A gold support price of Z$71 000.00 (seventy one thousand
Zimbabwe dollars) per gram would apply for those producers who
elect to sell 100% of their gold in exchange for local currency. This
support price will apply to both small and large scale producers.
(b) For those producers wishing to retain some of their proceeds in FCAs,
then:
• 50% is sold into foreign currency at the going international gold
price and retained in FCAs;
• 25% is sold to Government at Z$824 per US dollar for priority
payments; and
• 25% is sold at the gold support price of Z$71 000.00 per gram, or
at the auction rate, or at the foreign exchange floor price
whichever is higher.
GOLD LEVY
37.6 Currently gold producers pay a levy of 3% on delivery of gold.
67
37.7 Within the framework of the drive to enhance viability of the sector,
this levy has been removed with immediate effect.
MAKOROKOZA
37.8 Gold panning and the growing activities of what have come to be
known as “Makorokoza”, whilst having an adverse bearing on the
environment, has become a means of sustenance to the majority of
young Zimbabweans.
37.9 There is, therefore, need for a long term strategy to be put in place, for
these activities to be re-oriented into more formal and sustainable
mining operations.
37.10 As a short-term first step in this direction, the Reserve Bank and the
Ministry of Mines and Mining Development will provide special
licenses to designated agents who will buy gold in areas where these
operations are concentrated.
37.11 This arrangement should reduce grey market activities in the precious
metal.
38. MINING RIGHTS
38.1 Zimbabwe is acclaimed as one of the most endowed countries in
terms of mineral resources, particularly on such minerals as platinum,
gold, nickel and coal.
68
38.2 Unlocking this potential into real economic wealth requires that a
comprehensive investment and production drive be put in place in the
mining industry.
38.3 Mining, as a strategic investment is unique in the sense that its
gestation periods are typically long, compared to other investments,
with investors drawing positive real returns on investment after long
periods of at least 5 to 10 years.
38.4 Notwithstanding these key aspects of mining, the country
continues to perform under capacity in mining as a result of
underutilization of some mining rights, where potential investors
keep mining claims for years without tangible operational plans.
38.5 As part of a comprehensive mining development program, the
Reserve Bank urges the relevant authorities in the Mining Industry to
put in place after due study and consultations with all
stakeholders operational guidelines that stipulate maximum
periods over which mining claims can not remain unutilized. This
has been done in other countries with positive effects to the
economy.
38.6 The rights would, therefore, be subject to reissue, on the basis of
demonstrable serious production plans backed by proper
financing plans.
38.7 As Monetary Authorities, we stand ready to support any investment
initiatives that seek to uplift production activities in the country.
69
38.8 Only through a supportive environment can an economy realize
meaningful investment inflows.
38.9 Increased foreign exchange inflows which are expected to arise from
the supportive measures we have introduced, supported by greater
fiscal and monetary austerity, should allow availability of foreign
currency for dividend remittance.
38.10 Zimbabwe continues to allow 100% remittance of dividends.
39. PRODUCTIVE SECTOR SUPPORT
39.1 Increased production of goods and services in the economy is an
effective vehicle through which inflationary pressures can be
dissipated.
39.2 It is against this background that the monetary policy framework
attaches a significant weighting on productive sector support.
39.3 Increased production activity, which comes about as a combination of
higher capacity utilisation and incremental investment, also has a
direct positive bearing on job creation and preservation, as well as on
growth of household incomes, which in turn rejuvenates activity in
domestic markets for goods and services.
39.4 Over the first three months of this year, a total of Z$1.42 trillion was
disbursed to various productive sectors under the concessional
financing scheme funded through resources primarily ring-fenced
from statutory reserve payments by the banking system.
70
39.5 Main beneficiaries of this facility have been:
• Manufacturing, Z$683.7 billion; or 48.1%.
• Agriculture, Z$522.2 billion; or 36.8%.
• Mining, Z$115.8 billion; or 8.2%.
• Transport, Z$69.2 billion or 4.9%.
39.6 Tourism, construction and communication were also beneficiaries
under the facility, receiving Z$15.7 billion; Z$12.8 billion; and Z$1.6
billion, respectively.
REVOLVING FUND…
39.7 In order to balance the need to stimulate a supply response, whilst at
the same time containing the potential downside of demand-push
inflation arising from too much money chasing too few goods and
services, the productive sector support scheme will be capped at a
revolving fund of Z$1.5 trillion.
39.8 Under this arrangement, future disbursements to productive sectors
would be financed from repayments into the fund.
39.9 It is, therefore, our strongest expectation as Monetary Authorities that
the beneficiaries of this facility and the disbursing banks combine
their efforts to ensure maximum use of the funds and timely
repayments so as to enable wider access by other needy borrowers.
71
FURTHER ENHANCEMENTS…..
39.10 To enhance the positive impact of the facilities on the productive
sectors, the following enhancements of have been made to the
productive sector facilities:
(a) Extended the duration of the 30% productive sector facility on
exporters to 30 June, 2005 instead of 30 June, 2004 at a roll-over
interest rate of 50% p.a from 1 July, 2004.
(b) This is meant to facilitate cash-flow and viability planning on the part
of the beneficiaries who have been uncertain about the roll-over of the
current facility at the end of June, 2004.
(c) To qualify for this extension, beneficiaries have to show evidence of
confirmed export orders, actual export performance and a remittance
record. Monetary Authorities expect and increase of at least 20%
in exports by the beneficiaries over the period under review.
(d) Non-exporters will qualify for roll-over of the facilities provided
they can demonstrate that their companies increased employment
levels and reduced prices of their products by at least 10% and 25%
respectively over the last quarter and there is scope for further price
reductions and increases in employment numbers if support is
continued. Their facilities to be extended to 31 December, 2004 at an
interest rate of 50% effective I July, 2004.
72
PARASTATAL COMMUNITY
(e) As Monetary Authorities, we also announce the introduction of a six
months duration (to 31 December, 2004) productive sector facility at
50%, p.a. to Air Zimbabwe (maximum of $7.5 billion), ZBC
(maximum of $7.5 billion), ZESA (maximum of $30 billion), NRZ
(maximum of $20 billion), ZISCO (Maximum of $30 billion),
Hwange (maximum of $15 billion), all Local Authorities (maximum
of $20 billion in total), ZUPCO (maximum of $10 billion), Arda
(maximum of $25 billion), provided each of these institutions can
produce externally Audited set of accounts to 31 December 2003
by or before 31 July, 2004. After 31 July, 2004, the facilities will
cease to be available to the institutions.
(f) Applications for support must be accompanied by credible turn-
around plans to rid themselves of current bottle-necks, including
manning levels, board and management structures which make
economic sense.
(g) Without these supporting documents, the Reserve Bank will not avail
them of the productive sector monies which are cheap and necessary
for their turnaround.
(h) At the end of July 2004, the Reserve Bank will publish which of
these parastatals and Local Authorities will have succeeded in
accessing the funds while failure to do so will reflect shortcomings
inherent at the institutions which stakeholders will naturally get to
know about.
73
40. ANTI-INFLATION MONEY SUPPLY MEASURES
40.1 Inflation control remains the overriding objective of monetary policy.
40.2 Though it is premature to trace the progress of monetary policy in
reversing inflationary pressures in the economy, there are encouraging
developments on the price-formation trends in the economy, where
the wild monthly price increases experienced during the second half
of 2003 have markedly dissipated during the first quarter of 2004.
40.3 The decision to stimulate economic productivity through
concessional financing facilities was made under no illusion that
this would come at no risk to inflationary money supply growth.
40.4 In order to arrest the potential excessive growth in money supply, the
Reserve Bank is implementing an attentive mopping up program
through active daily open market operations (OMO) to weed out any
excess liquidity from the market.
MONEY SUPPLY TARGETS
40.5 In keeping with the anti-inflation drive, the Reserve Bank will
actively contain monetary expansion from current levels of around
490% annually to under 200% by end of December 2004.
40.6 This stringent money supply program is expected to bolster the anti-
inflation drive.
74
40.7 In order to ensure achievement of this monetary target, there will
continue to be close cooperation and complementarity between
monetary and fiscal frameworks, characterized by the following
measures:
(a) Implementation of the cash budgeting framework by Government
across Ministries;
(b) Containment of Government bank financing to levels within the 2004
National Budget framework;
(c) Restructuring and streamlining of public utility operations so as to
minimize the cost-push effects of their charges to the productive
sectors.
41 GOVERNMENT ACCESS TO RESERVE BANK WINDOW
1 JANUARY – 31 MARCH, 2004
41.1. In my maiden Monetary Policy Statement of 18 December 2003, I
underscored the need for fiscal discipline to complement the
austerity measures being implemented on the monetary policy
front.
41.2 Consistent with this, I also did stress that the Central Bank would
discourage unbudgeted access to the Reserve Bank overdraft window
beyond statutory limits.
41.3 It is thus pleasing to note that over the period 2 January 2004 to 7
April 2004 Government has, on average, maintained a credit
position on its Reserve Bank account, averaging around ZW$ 400
billion per day prompting calls by the Ministry of Finance and
75
Economic Development to be paid interest by the Reserve Bank on
those daily credit balances. This request is being evaluated for its
monetary and viability impact on the Reserve Bank and the economy
as a whole.
41.4 This positive cash development comes as a consolidation on the
sterling fiscal performance registered in year 2003 where
Government registered a near balanced budget, with a fiscal
budget deficit of -0,4% of GDP against a target of -7,8% of GDP.
PROFILE OF GOVERNMENT ACCOUNT BALANCE AT RBZ (Z$M):2 Jan-7 Apr 2004
-600,000.00
-400,000.00
-200,000.00
0.00
200,000.00
400,000.00
600,000.00
800,000.00
Date'04
5 8 12 15 19 22 26 29 2 Feb
5 9 12 16 19 23 26 1 Mar
4 8 11 15 18 22 25 29 1 Apr
5
2 JAN-7 APR '04
A/C
BA
LAN
CE
(Z$M
)
OVERDRAFT STATUTORY LIMIT (Z$260bn)
Gvt in surplus position
Deficit position
41.5 We commend Government as a whole, the Ministry of Finance and
Economic Development, all accounting officers in Ministries and their
staff as well as ZIMRA for such a sterling contribution to this
outcome which also caught the attention of both IMF and World
Bank teams during their recent consultative visits to Zimbabwe.
76
41.6 As Monetary Authorities, we can only be proud of such achievements
which, if sustained, will see us meeting our targets earlier than
projected.
42 DISTRIBUTION OF BANKING SECTOR CREDIT
42.1 In line with the thrust to revive the productive sectors
Government’s share in total banking credit has declined
substantially, from 28% in January 2003 to 23% as of 31 January
2004. Correspondingly, credit to the private sector has gained
greater prominence, from 65% of total domestic banking sector
credit to 71% over the same period. The share of credit to public
enterprises has remained generally stable at around 7% of total
domestic credit.
42.2 Against this background, the traditional argument that the public
sector has tended to crowd-out the private sector in the allocation
of limited domestic financial resources cannot continue to be
advanced blindly.
42.4 The Private sector is, therefore, challenged to be responsive to
these supportive developments on the fiscal front.
77
Distribution of Domestic Credit:Govt, Pes & Pvt
0%
20%
40%
60%
80%
100%
Jan-0
3
Feb-03
Mar-03
Apr-03
May-03
Jun-0
3Ju
l-03
Aug-03
Sep-03
Oct-03
Nov-03
Dec-03
Jan-0
4
Sha
re (%
)
Credit to Private Sector
Credit to Government
Credit to Parastatals
Sectoral Distribution of Domestic Credit: Gvt, Pvt Sector & PEs
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
Jan-0
3
Feb-03
Mar-03
Apr-03
May-03
Jun-0
3Ju
l-03
Aug-03
Sep-03
Oct-03
Nov-03
Dec-03
Jan-0
4
Z$m
Credit to Private Sector
Credit to Parastatals
Credit to Government
78
43. INTEREST RATES POLICY
43.1 Whilst the active intermediate target for monetary policy will
continue to be the broad money supply aggregate, the Reserve
Bank’s interest rate policy is expected to give support to the dual
policy priorities of inflation control and economic growth.
43.2 Over the short term, the Bank will continue to maintain the dual
interest rate policy as enunciated in my 18 December 2003 Monetary
Policy statement.
43.3 This policy position will be reviewed progressively, guided by the
underlying supply response to the concessional accommodation of
productive sectors.
43.4 The Reserve Bank, however, notes that the level of interest rates on
non-concessional borrowing as has obtained in the economy over the
recent months, particularly between the last quarter of 2003 to March
2004, have been excessively high.
43.5 This is particularly so when one compares the compounded
effective rates as currently obtaining in the market against
prevailing inflation.
43.6 Whilst high levels of interest rates are necessary to cull away
inflationary demand for credit, it is necessary that these rates be
appropriately aligned, in compounded effective yield terms, to
prevailing inflation levels, so as to avoid choking off necessary
79
minimum consumptive demand for goods and services, as well as
inadvertent deterioration of asset quality for the financial system.
43.7 With immediate effect, the Reserve Bank will implement the
following benchmarks to act as indicative thresholds for interest rate
consistency with the thrust of monetary policy:
44 ACCOMMODATION POLICY 44.1 The Reserve Bank remains resolute in its commitment to maintain a
stable, vibrant, and reliable financial system.
44.2 Consistent with the announced position in my December 2003
Monetary Policy Statement, the Reserve Bank would closely
scrutinize the underlying causes for banks’ liquidity mismatches
before taking the position to accommodate any institution.
44.3This stance is meant to promote prudent assets-liabilities management
systems as well as astute liquidity management by banking
institutions.
44.4 Through the lender of last resort window, and to institutions which
would have fully motivated their case for overnight accommodation,
the Reserve Bank would accommodate banks at nominal interest rates
which when annualized, daily compound, monthly compound,
quarterly compound or bi-annually compound, as the case may be,
yield a positive real rate of 10-20 percentage points above the
prevailing inflation rate.
80
44.5 For example, using an inflation rate of 603%, a nominal overnight rate
of 205% would yield an effective daily compounded annual rate of
673%, yielding a positive real accommodation rate of around 10%,
after netting off the impact of inflation on interest income. (See Annex
on interest rates schedules).
44.6 Where the borrowers have successfully motivated their case for
accommodation but fail to provide the necessary collateral, the
Reserve Bank would apply a penal upper band rate of 10 percentage
points above the secured overnight rate would apply.
44.7 The immediate effect of this policy position would be to have a
downward adjustment of the current market rates.
44.8 This development should by no means send the signal of monetary
policy loosening. To the contrary, positive effective real rates on
inflation will continue to be stringent enough to keep monetary
growth in check and consistent with the targeted levels.
44.9 The new interest rate regime is expected to balance the virtues of
monetary austerity and preservation of an active market for goods and
services to support industry, as well as maintenance of a healthy
financial sector with a good assets base.
44.10 Banks are therefore, encouraged to align their interest rates in
line with the new framework.
81
REPURCHASE WINDOW
44.11 To enable smooth intra-day operations of the financial system, the
Reserve Bank would continue with the repo system, which will be
contacted on a bidding process.
STATUTORY RESERVES MANAGEMENT
44.12 Banks are once again reminded to desist from underpayment of
statutory reserves through “creative” accounting.
44.13 Surveillance investigations by the Reserve Bank have revealed gross
understatement of statutory reserves where for instance, in one week
(ending 2/4/04) the banking sector’s total underpayment of statutory
reserves amounted to Z$642.8 billion, comprising Commercial
Houses, Z$40,3 billion; Finance Houses Z$2,3 billion; and Building
Societies, Z$2,2 billion
44.14 This level of indiscipline through “cosmetic” and “creative”
accounting cannot be allowed to continue, if the financial sector is to
play its strategic intermediary role in the economic growth and
development of the country.
44.15 With immediate effect, the Reserve Bank will be approaching all
defaulting institutions for them to fully account for their
shortfalls, and comply with statutory requirements.
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45. OPEN MARKET OPERATIONS INSTRUMENTS
45.1 To enable smooth functioning of the money market, it has become
necessary that the Bank streamlines its instruments of open market
operations intervention.
45.2 With immediate effect, the Reserve Bank has suspended issuance of
Reserve Bank bills, with any stocks of such bills being converted into
91-day Treasury bills at prevailing market yields.
45.3 Financial bills will continue to be used as the main instrument for
open market operations under the following modified arrangements:
(a) On each allotment for every tender, each financial institution is
encouraged to allocate a minimum of 50% for onward investment of
corporates and individuals wishing to invest in the Financial Bills.
• This measure is meant to limit the adverse effect of direct Reserve
Bank-market interface on banking institutions’ drive to grow
liabilities, at the same time providing an effective investment vehicle
for the general public.
(b) The financial bills will continue to be issued on a tender basis.
46. NATIONAL PAYMENTS SYSTEM
46.1 In my Monetary Policy Statement of 18 December 2003, I
emphasized the importance of a payment system within the
economy and the need for it to be robust and efficient in order to
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ensure financial stability and adequately support the execution of
Monetary Policy.
46.2 To this end, the Reserve Bank introduced new clearing and
settlement procedures which were recently dispatched to all
banks. These procedures will continue to be enforced in order to deal
with any negative practices that may pose a risk to the financial
system.
46.3 In line with international best practice of reducing risk associated with
cheque payment stream, the Reserve Bank will continue with its
efforts to encourage usage of the Zimbabwe Electronic Transfer and
Settlement System (ZETSS).
46.4 Our ultimate goal in this regard is to achieve a 90% ZETSS utilization
level, in value terms, before the end of 2004. This would leave only
10% to be settled through the cheque payment avenue.
46.5 Clearing financial institutions are, therefore, encouraged to continue
raising awareness of the system to their clients.
46.6 In order to further enhance efficiency and effectiveness in the
settlement of payment transactions via this new system, the Reserve
Bank in January 2004, instituted a project to extend direct access to
the ZETSS facility to all banking institutions.
46.7 This position would see merchant banks, discount houses, building
societies, finance houses and the POSB coming on stream by end of
July 2004.
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46.8 Success of this extension is also expected to address some of the
challenges being faced by commercial banks in executing transactions
on behalf of other financial institutions in line with the Central Bank’s
directive prohibiting inter-bank high value cheques of Z$5 million and
above.
46.9 I am pleased to note that as part of relieving these challenges, the
Reserve Bank has in the interim, put in place sponsorship
arrangements to enable some of these institutions to access the
ZETSS system.
46.10 As the market moves more towards the ZETSS system, it is important
to note that the availability of liquidity is key to the smooth operation
of the clearing system as it operates on a “credit-push” basis i.e. a
transaction can only be made only if there are sufficient funds in the
settlement account held at the Reserve Bank.
46.11 To this end therefore, participants are highly dependant on each other
and should organize payment flows in a manner that maximizes the
use of liquidity among market players.
46.12 The Central Bank will remain resolute in driving up collaborative
and market research efforts to modernize the payment system
and address any challenges that may be facing us on an on-going
basis, as we integrate ourselves in the global village.
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47. SOCIAL CONTRACT 47.1 Successful turnaround of the economy requires that current fiscal
and monetary policy initiatives be supported by a social contract among stakeholders.
47.2 The frameworks of stakeholder consultations, which have evolved
under the auspices of the Tripartite Negotiation Forum (TNF), the National Economic Consultative Forum (NECF) and the Reserve Bank, should be revitalised so as to engender solid ground for a social contract. The Head of State, H.E. President Mugabe has on numerous occasions urged this to happen. It must happen.
47.3 Areas requiring coordination at the national level include incomes
policy, pricing frameworks, public utilities accountability and service delivery, and Nation building in general.
47.4 As Monetary Authorities, we have committed ourselves to fighting
inflation vigorously through supply side interventions, as well as monetary restraint in speculative, non-productive areas. Labour should therefore, go into wage negotiations this year putting more emphasis on the disinflation program and self-restrain in the interests of a better economic environment tomorrow after our turnaround.
47.5 Government efforts to re-orient public enterprises into
commercially run entities should strengthen the turnaround programme, not only through the direct positive impact on fiscal deficit reduction but also increased service delivery, quality and sustainable cost structures.
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48. JOB PRESERVATION AND EMPLOYMENT CREATION 48.1 One of the core priorities of the turnaround program is the
preservation and creation of jobs, for the uplift of welfare of the country’s labour-force, and the Zimbabwean society in general.
48.2 Current trends towards wholesale retrenchments are not in line with
our expectations unless absolutely necessary. We therefore urge for restraint on the part of employers as a quid-pro-quo for restraints in wage and salary demands we are calling for from workers. Furthermore, management at various places must also exercise restraint in their own salary demands and awards so as to lead by example.
48.2 It is for this reason that the Monetary Policy framework has put
greater emphasis on the viability of the productive sectors through provision of concessional finance facilities, as well as comprehensive incentives to exporters to forestall factory closures and/or downsizing of operations.
48.3 The positive impact of the informal sector on the wellbeing of
nationals has also been recognised through the allocation of Z$12 billion to finance job-creating activities of micro-enterprises.
48.4 Through effective usage of these vehicles of financial support, the
symbiotic relationships between the productive sectors and labour should be enriched through preservation and creation of jobs, which, in turn, enhances households’ incomes, broadens scope for growth in national savings, as well as rejuvenating effective demand for goods and services to support local industry.
49. TELECOMMUNICATIONS INDUSTRY 49.1 The Telecommunications Industry has registered considerable growth,
following the liberalization of the sector.
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49.2 In order to further support the industry, as well as recognize the
peculiarity of their interconnect cash-flows which are invoiced
and reconciled at internationally agreed time-lags, the following
carrot and stick foreign exchange retention scheme would apply
for the sector:
Carrot and Stick Schedule for Telecommunications Operators
Repatriation Period Retention of Export Proceeds
in FCAs
1-60 days 80%
61-90 days 70%
91-120 days 60%
121-180 days 30%
181 days< 0%
49.3 As Monetary Authorities, we welcome the work currently in
progress between POTRAZ and the Telecommunications
Industry meant to put in place a framework that would ensure
that the country’s international termination rates are
appropriately priced. These initiatives would also deter illegal
dumping of international traffic at cheap rates through activities of
Voice Over Internet Protocol (VOIP) operators.
49.4 As part of initiatives to enhance foreign currency inflows from the
Diaspora, the Reserve Bank has also expressed its willingness to
amend regulations so that local airtime can be paid in foreign
currency from the Diaspora. We are pleased to note that the
Telecommunications Industry is working closely with POTRAZ
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towards establishment of operational modalities for this arrangement
to take effect.
50. IMPORTANCE OF REGIONAL MARKETS
50.1 As the productive sector takes initiatives to expand their operations
under the various supportive measures introduced in this Monetary
Policy framework, it is imperative that exporters also take full
advantage of regional markets, and the preferential trade
protocols that already exist under the auspices of such
organisations as COMESA and SADC.
50.2 As a Central Bank, we take great interest in the deepening and
broadening of regional trade, and thus, strongly urge the relevant
Authorities in the region to rationalize tariffs in a manner that
enhances producer viability and promote greater flows of trade
among trading partners.
50.3 Growth in Pan-African trade does not only benefit member
countries through the attendant support to each other’s industries and
other productive systems, but also lays the ground for ultimate
convergence of regional economic systems to form a strong
trading bloc that would better represent Africa’s interests on the
competitive global marketplace.
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51. CROSS-BORDER INVESTMENT AND FOREIGN EXCHANGE
GENERATION
51.1 While Zimbabwe’s current foreign exchange reserves are low relative
to demand, which is precluding support for cross-border initiatives in
equity type investments, we wish to recognise that some of
Zimbabwe’s strengths lie in the strong brands of its corporate
entities, the intellectual capital of its entrepreneurs, and their
expertise in managing businesses.
51.2 In recognition for this, as Monetary Authorities, we are encouraging
Zimbabweans seeking cross-border ventures to at this stage
negotiate for equity options that would come into effect at later
stages, but go for management and technical support agreements
and/or strategic brand franchise synergies from which they can
earn management fees in foreign exchange for repatriation back
home.
51.3 The Reserve Bank undertakes to allow 100% retention of such inflows
in FCAs to registered participants, usage of which would not be
subject to any Exchange Control requirements.
51.4 Operational modalities and the registration framework for this
program will be made available to the market in due course.
52. PRESCRIBED ASSETS HOLDINGS BY THE INSURANCE
AND PENSION FUND INDUSTRY.
52.1 As Monetary Authorities, we also take a keen interest in the stability
of the Insurance and Pension Fund industry, as it has an
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important bearing on the smooth functioning of the banking
system.
52.2 We are, however, greatly concerned that the majority of players in
this industry are not complying with prescribed asset holding thresholds, citing unavailability of long-dated Government paper in the market.
Insurance & Pension Fund Industry: Compliance Status as at 31 December 2003
Institutions Prescribed Assets Holding
Requirement
Actual
Variance
Comment
Life Assures 45% 9% - 36% Did not comply Non- Life Assures 30% 31% + 1% Complied Life Reinsures 45% 5% - 40% Did not comply Non-Life Reinsures 30% 14% - 16% Did not comply Funeral Reinsures 45% 21% - 24% Did not comply Self-administered Pension Funds
45% 19% - 26% Did not comply
52.3 As part of efforts to engender long-term stability of the financial
sector, we strongly recommend to the Authorities, Auditors, Boards and Trustees to take necessary steps to ensure compliance with statutory requirements by the Insurance and Pension Fund Industry.
REAL ESTATE SECTOR
• As Monetary Authorities, we are gravely concerned about the
prevalent unscrupulous increases in rentals by Real Estate Agencies and property owners, which are completely unrelated to any changes in economic fundamentals.
• For the main reason that such practices work to defeat our declared
fight against inflation, the Reserve Bank, together with other relevant Authorities in Government will be taking stern measures on agencies and/or individuals who refuse to take heed.
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53. EXCHANGE CONTROL VIOLATIONS AND REPATRIATION OF FUNDS.
53.1 There have been, in recent weeks widespread calls for an amnesty
to be granted to those who have been caught on the wrong side of
the exchange control rules and regulations dealing with
externalization of the country’s foreign exchange resources.
53.2 While we as a Bank have taken a softer and more understanding
approach to parallel market transgressions because of circumstances
prevailing before 1 December, 2003, we however reject the
suggestion that a blanket amnesty be extended, at this stage of our
clean-up exercise, to those who externalized our foreign currency
under one disguise or the other. Besides though, the granting of any
AMNESTY is the prerogative of the Head of State and therefore,
such calls for a reprieve should not be directed at the Central Bank as
has been the case recently.
53.3 As Monetary Authorities, we however make a passionate, patriotic
and upright call to all those who externalised export-related proceeds originating from this country, by whatever disguise, directly or indirectly, to repatriate those funds back to Zimbabwe
53.4 This call, which is by no means an amnesty, largely derives meaning
from the spirit that any amnesty that may be granted in future by the Head of State, the Cabinet or the Legislature as the case maybe, would need to find a solid basis from such gestures of goodwill and a readiness to normalize life by corporates, individuals and NGOs who may have crossed and did cross the legal boundaries of the country’s statutes.
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53.5 Law enforcement agents will still continue to vigorously pursue and
discharge their functions of reigning in any defaulters and
offenders under their own enabling statutes and this should not be
construed as the work or initiation of the Reserve Bank, as some
victims of police nets have seemed to suggest.
53.6 Those who are in a position to return externalized foreign currency
should do so through the Bank’s (RBZ) Exchange Control Division
and such cases, we are sure, will be viewed sympathetically by the
authorities when they catch-up, and catch-up they will, with the
transgressors.
54.7 We sincerely believe that our views as a Bank will be persuasive in
the minds of law enforcement authorities when they come across
voluntary disclosures and repatriations. We also believe that those
who have todate voluntarily repatriated what they had previously
externalized (and there are a few around) are now sleeping more
peacefully at night than before.
54.8 Our contact person for such repatriations and register-keeping is
Mr. Fortune Chasi, who is the Legal Advisor and Assistant to the
55.1 As Monetary Authorities, we would like to express our sincere
gratitude to members of the public for responding positively to
our call for cooperation in unearthing graft through swift sharing
of vital information on malpractices in foreign currency
transactions.
55.2 Over the period 18 December, 2003, to date, a total of 150 cases have
been received under the Whistle-Blowers arrangement, and these are
at various stages of investigations.
55.3 Once the cases have gone through the courts, and the exact prejudices
to the country are determined, the Bank will reward the informants in
line with guidelines announced in my Monetary Policy Statement of
18 December, 2003.
55.4 Once again, I take this opportunity to assure members of the public
that all information provided including the identity of informants,
is treated with strict confidentiality throughout the process.
56 FINANCIAL SECTOR CHARTER
56.1 In my December 2003 Monetary Policy Statement, I expressed the
Bank’s wish that the financial sector join efforts to put together a
financial sector charter during 2004.
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56.2 The recent experiences in the Financial Sector amply testify on the
need for a defined common thread that binds the financial sector to
maintain integrity and public confidence and hence play an active role
in economic growth and development of the country.
56.3 I, therefore, call upon the leadership in the financial sector to initiate
and drive the formulation of Zimbabwe’s financial sector charter as a
giant progression towards lasting financial sector discipline and
stability.
56.4 Already countries like South Africa have gone a long way in putting
this framework into practice, and evidence on the ground suggests of
tremendous buy-in and favourable impact of this framework in
uplifting the role of the financial sector in national development.
57. EXTENDED BANKING HOURS
57.1 It was also my wish that the Banking Sector goes an extra mile in
supporting economic activity in the productive sectors, as well as
enhances convenience to the banking public by extending banking
hours to the public on Wednesdays.
57.2 To this date, it is disheartening to note that not much progress has
been made in this regard.
57.3 Once again, I encourage the leadership in the banking industry to
come together and formulate a common position on this noble
cause.
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58 ENGAGEMENT WITH OUR CREDITORS
58.1 In line with our national pledge to cooperate fully with all our
creditors, local and international, I am pleased to report that the
period under review has seen us engaging in serious, sustained
and purposeful dialogue with most of our creditors and/or
creditor representatives.
58.2 We have engaged most in the donor community, our multilateral
and bi-lateral creditors, members of the diplomatic community,
special interest groups such as the Tobacco Growers Trust (TGT),
local gold producers and many others across the board with a
view to establishing a solid platform of understanding.
58.3 Through these discussions and public addresses, we have been able to
put the case of our indebtedness on the table and appealed for
mutual cooperation and support in a win-win situation.
58.4 While it is still too early for us to comment substantially on the
effectiveness and/or results of these meetings, suffice to say that most
of our creditors now appreciate the dynamics of our situation,
including the fact that we are serious about implementing our
home-grown turn-around program, and that with sustained effort
across the board, we should be able to come out of our unique
difficulties soon and be able to repay, in the fullness of time, all
our debts.
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58.5 We remain grateful to the recent IMF and World-Bank teams
which visited our country for consultations and dialogue. We
were able to exchange ideas and share views on how best we can
revive our economy. We were heartened by their open mindedness
to our unique situation and by their appreciation of our vision, goals
roadmap and efforts to date.
58.6 We remain committed to this form of cooperation and
engagement and will take into account all sincere and
complementary suggestions and experiences that result from such
cross-pollination of knowledge when formulating and
implementing our programs.
58.7 Our dialogue with other bi-lateral and multilateral agencies as
represented in this country at the diplomatic or donor agency
levels have also enhanced understanding between us and we
intend to maintain an open-door policy to initiatives and
suggestions that will result in the effective transmission of
monetary, fiscal, sectoral and other Government related
programs aimed at our economic turn-around.
58.8 In the local front, we will report progress in the next quarter
Monetary Policy Review on the impact of our communication and
local debt rescheduling initiatives.
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59. CONCLUSION
59.1 Ladies and Gentlemen, our Vision, Mission, aspirations and targets
remain the same as espoused in my Maiden Monetary Policy
Statement of December, 2003.
59.2 Success in our efforts however can only come about through the unwavering cooperation and mutual support for joint initiatives among all stakeholders.
59.3 Greater priority will need to continue being placed on enhancing
viability of our productive sectors, particularly exports, in a responsive and meaningful way.
59.4 As Zimbabweans, we can not afford to resist the natural
compulsion to self-correct and redefine a resourceful destiny for our Great Nation.
59.5 Now is the time to re-orient our national economy through shared
excitement, pain and resilience. The magnitude of the challenges before us must not be allowed to shrink our individual, collective and national determination to turn around our fortunes in the shortest time possible.
59.6 Our fight against economic crimes and for the economic
prosperity of this nation will not and cannot be without its own casualties but fight graft, fight indiscipline and fight for the majority of our people, we must!
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59.7 As Monetary Authorities, we commit, as long as we carry Government support, to execute our mission without fear, favour or distraction.
59.8 In God’s hands I commit this Monetary Policy Review Statement
and wish to thank all men and women of goodwill, the leaders and pastors of various churches, the leadership of special interest groups, the common man and woman in the street, workers at various levels and indeed the President, Cabinet, Parliamentarians and other stakeholders too numerous to mention who have, and continue to support our modest efforts as a Central Bank to turn around our economy. It is the totality of this support which makes an otherwise difficult assignment rather easy to execute.
I thank you all!
G GONO GOVERNOR April 2004
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ANNEX 1A: INTEREST RATE SCHEDULE (INFLATION 603%) INTEREST RATE SIMPLE NOMINAL AND ANNUAL COMPOUND TABLE (Based on a 365-day financial year)
1. The schedule shows the simple nominal rates which if compounded, daily, monthly, quarterly, or bi-annually would yield different levels of real rates above inflation.
2. The Table has used the February 2004 annual inflation of 603%. 3. The shaded portion reflects the new monetary policy interest rates ranges. 4. The link between inflation, nominal interest rates and real interest rates has been
derived using the following interest rate formula for high inflation scenarios: Interest Rate Relationship: (1 +compounded nominal rate ) = ( 1 + real rate ) * (1 + percent inflation) (1)
Notes: 1. The schedule shows the simple nominal rates which if compounded, daily,
monthly, quarterly, or bi-annually would yield different levels of real rates above inflation.
2. The Table has used an annual inflation rate of 500%. 3. The shaded portion reflects the new monetary policy interest rates ranges. 4. The link between inflation, nominal interest rates and real interest rates has been
derived using the following interest rate formula for high inflation scenarios:
1. The schedule shows the simple nominal rates which if compounded, daily, monthly, quarterly, or bi-annually would yield different levels of real rates above inflation.
2. The Table has used an annual inflation rate of 400%. 3. The shaded portion reflects the new monetary policy interest rates ranges. 4. The link between inflation, nominal interest rates and real interest rates has been
derived using the following interest rate formula for high inflation scenarios: Interest Rate Relationship: (1 +compounded nominal rate ) = ( 1 + real rate ) * (1 + percent inflation) (1)
Notes: 1. The schedule shows the simple nominal rates which if compounded, daily, monthly,
quarterly, or bi-annually would yield different levels of real rates above inflation. 2. The Table has used an annual inflation rate of 300%. 3. The shaded portion reflects the new monetary policy interest rates ranges. 4. The link between inflation, nominal interest rates and real interest rates has been
derived using the following interest rate formula for high inflation scenarios:
1. The schedule shows the simple nominal rates which if compounded, daily, monthly, quarterly, or bi-annually would yield different levels of real rates above inflation.
2. The Table has used an annual inflation rate of 200%. 3. The shaded portion reflects the new monetary policy interest rates ranges. 4. The link between inflation, nominal interest rates and real interest rates has been
derived using the following interest rate formula for high inflation scenarios: Interest Rate Relationship: (1 +compounded nominal rate ) = ( 1 + real rate ) * (1 + percent inflation) (1)
1. The schedule shows the simple nominal rates which if compounded, daily, monthly, quarterly, or bi-annually would yield different levels of real rates above inflation.
2. The Table has used an annual inflation rate of 100%. 3. The shaded portion reflects the new monetary policy interest rates ranges. 4. The link between inflation, nominal interest rates and real interest rates has been
derived using the following interest rate formula for high inflation scenarios: Interest Rate Relationship: (1 +compounded nominal rate ) = ( 1 + real rate ) * (1 + percent inflation) (1)
1. The schedule shows the simple nominal rates which if compounded, daily, monthly, quarterly, or bi-annually would yield different levels of real rates above inflation.
2. The Table has used an annual inflation rate of 50%. 3. The shaded portion reflects the new monetary policy interest rates ranges. 4. The link between inflation, nominal interest rates and real interest rates has been
derived using the following interest rate formula for high inflation scenarios: Interest Rate Relationship: (1 +compounded nominal rate ) = ( 1 + real rate ) * (1 + percent inflation) (1)
1. The schedule shows the simple nominal rates which if compounded, daily, monthly, quarterly, or bi-annually would yield different levels of real rates above inflation.
2. The Table has used an annual inflation rate of 10%. 3. The shaded portion reflects the new monetary policy interest rates ranges. 4. The link between inflation, nominal interest rates and real interest rates has been
derived using the following interest rate formula for high inflation scenarios: Interest Rate Relationship: (1 +compounded nominal rate) = ( 1 + real rate ) * (1 + percent inflation) (1)
