ZIMBABWE has secured $210 million from external development financial institutions towards financing of capital projects in productive sectors of the country’s economy.
Reserve Bank of Zimbabwe governor John Mangudya revealed this yesterday as he announced the mid-term monetary policy statement, which contains a cocktail of measures aimed at consolidating economic growth and stimulating new investment.
He said the banking sector had agreed to lower interest rates to between six and 18 percent with effect from October 1 following guidelines agreed with the central bank.
Zimbabwe’s exorbitant interest rates of up 40 percent per annum have been blamed for stifling economic growth and breeding non-performing loans in an economy that is hit by liquidity challenges.
Mangudya said amendments to the Banking Act were underway as he vowed increased involvement of the apex bank in mobilising resources towards turning around the economy in line with the government’s blueprint, Zim-Asset.
“The Reserve Bank is mobilising development financial resources to finance capital projects that are necessary to enhance production within the country. It’s against this background that the Reserve Bank has managed to negotiate with development financial institutions like PTA Bank, the African Export-Import Bank (Afreximbank) and the Development Bank of Belarus for various project finance facilities amounting to US$210 million,” said Mangudya.
“Projects to be financed under this initiative will be made available to entities with both the ability and willingness to repay through normal banking channels.”
He said the Reserve Bank was gradually expanding its role under this development finance programme in order to go beyond stabilisation and to ensure debt sustainability.
On interest rates, Mangudya said lending to productive sectors would not exceed 18 percent per annum, depending on the borrower’s risk profile. He pegged housing finance at between eight to 16 percent per annum with consumptive lending settling at between 10 percent and 18 percent.
Defaulting borrowers, he said, would be liable to a penalty rate of 3-8 percent above the relevant lending rate.
“In view of high interest rates currently obtaining in the economy, there is scope for reduction to ensure that lending rates are supportive of economic recovery.
“In this regard, banks are urged to reduce their cost structures to enable them to contribute to the reduction of the cost of doing business in Zimbabwe,” said the governor.
The downward review in bank charges and interest rates is envisaged to achieve the key objectives of stimulating aggregate demand, promoting the resuscitation of industry, improving the ease of doing business and supporting sustained economic growth and development and thereby going beyond stabilisation.
The agreed interest rate guidelines should also act as an incentive for borrowers to timely service their loans, improve their risk rating and access cheaper financing from banks, said the governor.
He said annual headline inflation remained in sub-zero levels, declining from -0.001 percent in October 2014 to -2.80 percent in June 2015.
Mangudya said the negative inflation, which is sustained by the on-going downward correction and re-alignment of food and non-food prices, shows that there has been a deliberate move by local producers to reduce prices of goods and services.
He said the reduction in prices was necessary to maintain and enhance competitiveness of local products in line with regional trends. Mangudya said the government was seized with crafting policies that enhance foreign exchange generation, a critical ingredient for domestic growth.
He also said the RBZ would, through normal banking channels, establish a window to provide affordable pre and post-shipment export financing.
The successful establishment of this scheme, he said, would see pre-shipment credit being extended by commercial banks to exporters for the purchase of raw-materials or finished products upon presentation of confirmed export orders or letters of credit.
Under this scheme, banks would extend credit to exporters and receive refinancing under the interbank market facility, with the Reserve Bank playing a regulatory and oversight role under the scheme.
Mangudya challenged the productive sector to diversify exports to increase earnings and commended the successes made by the tobacco subsector, which has reaped more than $300 million since January.
He said the agriculture sector should take advantage of the normalisation of relations with the European Union to expand horticultural and other exports in which the country has competitive and comparative advantages. The governor noted the improvements in gold deliveries to Fidelity Printers and Refiners and anticipated similar milestones in the export of other minerals would bring the economy the much needed liquidity.
Synchronisation and harmonisation of export authorisation, he said, was critical for streamlining the issuance of export permits by various regulatory authorities in order to reduce export barriers.
Mangudya stressed the need to harness Diaspora resources in turning around the economy and pledged the government’s commitment in attracting increased remittances.
He said the Reserve Bank has instituted policies to effectively mobilise Diaspora remittances hence the realisation of the need to review the money transfers regulatory framework.
This has resulted in registration of 30 new money transfer agencies through the Authorised Dealer with Limited Authority (ADLA) in April this year.
The RBZ boss said amendments to the Banking Act [Chapter 24:20] were progressing, although slowly, due to engagement with stakeholders.
He said positive technical assistance was being provided by the IMF and the World Bank.
The amendment of the Act is aimed at improving the corporate governance of banking institutions, making banking institutions more responsive to their customers’ needs and to encourage the resolution of disputes between banks and their customers among others.
The governor urged banking institutions to embark on cost efficient initiatives and to adopt models that make banking more accessible to the public and enable banks to reach out to all communities for purposes of financial inclusion.