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MONETARY POLICY STATEMENT REVIEW

15 September 2016

The Reserve Bank Governor, Dr John Mangudya, presented the Mid Term Monetary Policy Statement on
15 September 2016 and highlighted that the Zimbabwean economy is currently characterized by:

Limited access to foreign finance.

Liquidity challenges.

Compromised food security as a result of the El-Nino induced drought.

Poor infrastructure

Institutional weaknesses.

An overvalued exchange rate contributing to a deflationary environment in 2016.

Issues on land security tenure and investment regulations which are yet to be finalized.

High input costs which have been a deterrent in attracting domestic and foreign investment.

An increasing fiscal gap in the absence of external financing, which has led to a decline in private sector
activity and a reduction in domestic credit.

A combination of the current internal and external imbalances and historical challenges need to be urgently
addressed for the proper functioning of the multi-currency exchange system that is currently dominated by the
use of United States dollars. This situation requires the nation to do things differently and WALK THE TALK to
transform the economy by changing the narrative from consumption to production. The policy measures
presented are designed to augment the measures taken by the RBZ in May 2016. The new measures include:

The elimination of administrative hurdles of contracting offshore loans.

Resuscitation of the credit guarantee scheme to enhance local production by small to medium scale
enterprises.

Putting in place Nostro stabilization facilities to deal with delays in the remittance of outgoing foreign
payments.

Promotion of internal devaluation using market-based mechanisms to restore competitiveness in the


national economy.

Encouraging the fast-track elimination of bottlenecks that are hampering the ease of doing business
within the economy especially in the export production sectors.

To achieve the optimal levels of economic turnaround it is imperative to transform the economy from a
consumptive to a productive one which requires fiscal discipline, production discipline, policy discipline, and
effective communication.

The Governor shared progress to date as summarised in the table below:


Table 1: Summary of Policy Measures Implemented by RBZ
1

POLICY

POLICY OBJECTIVES

PROGRESS TO DATE

Credit Reference System to be

To cleanse the banking sector of bad

deployed by 30 September

debts through improving information

reference system unit has been set

2016.

asymmetry and credit risk.

up at RBZ.

Development of a robust legal

The establishment of the collateral

Bill to be presented in the last

and regulatory framework for

registry will assist members of the

quarter of 2016.

the collateral registry with the

public who were unable to access

Ministry of Finance and World

credit and other banking facilities for

Bank.

lack of immovable security.

Adoption and Implementation

This is expected to ultimately result in

Implementation and

of

a more sound, lower-risk banking

processes by 30 September 2016.

IFRS

9:

Financial

Instruments

credit

registry

and

credit

adoption of

system with more efficient banks and


better allocation of capital.

Developing guidance to the

To enhance safety and soundness of

The guideline will be issued for

banking

the Banking sector.

comments to the market by 30

sector

development

of

on

the

recovery

September 2016 and all banking

plans, in line with standards

institutions will be required to submit

established by the Financial

to the Reserve Bank their recovery

Stability Board after the Global

plans by 31 December 2016

Financial Crisis.

National

Financial

Inclusion

Strategy

To reach out to the marginalised

3 000 Agency Banking access

banking community in areas where

points opened and RBZ already

there

developed Prudential Standards No.

are

challenges

accessing

banking facilities

01-2016/BSD

which

outline

the

minimum regulatory expectations of


agency banking.
6

Financial Consumer Protection

increase public awareness of financial

Banking institutions are required to

Standards

services

prime

and

products,

promote

their

risk

management

greater transparency and minimize

systems and processes to ensure

information

compliance with the provisions of

financial

asymmetry

services

between

consumers

and

banking institutions

the Banking Act as amended, and


the Prudential Standards which will
be issued by 30 September 2016.

Financial Literacy Framework

To increase awareness of and access

Framework to be issued by 30

to

September 2016.

effective

financial

education;

determine and integrate core financial


competencies;
education

improve

financial

infrastructure,

increase

individual knowledge and skills and


help

individuals/businesses

understand financial laws and ethics.


8

Financial Inclusion of Women

To focus on developing products and

All banking institutions are required

services that meet the specific needs

to submit to the Reserve Bank, by

of SMEs and women entrepreneurs in

31 December 2016, their 2017

order

targets

to achieve

overall financial

inclusion target of 90% by 2020.

for

lending

financial

products

targeted

at

accompanying

and

and

women,
capacity

other

services
including
building

activities such as tailored financial


literacy or other training programs.
9

Value Chain Financing Model

To spur Economic Development.

Already operationalised.

OTHER DEVELOPMENTS
The Export Incentive Scheme
Government, through the Reserve Bank of Zimbabwe, introduced the performance related export bonus scheme
of up to 5% in May of 2016 to be awarded to exporters of goods and services to address the challenges of low
productivity and promote exports with the overall aim of liquefying the multi-currency exchange system. The
funding mechanism of the export incentive scheme will be through bond notes in order to preserve the offshore
US$200 million counter-cyclical facility that has been arranged to support the export bonus scheme from
externalization and/or capital flight which has continued to negatively affect the economy since dollarization in
2009. The bond notes will be zero-coupon, tax-exempt debt instruments. The bond notes will start to circulate by
end October 2016 will be at par with the US$ (i.e. one to one) and will be used and treated in the same manner as
bond coins.
Balance of Payments Developments
The Zimbabwean economy is primarily a consumptive one and has greatly de-industrialised, has weak economic
fundamentals and hence it has continued to be affected by sustained mismatches between export receipts and
imports as evidenced by the disproportionate import absorption relative to exports. Over the period January to
June 2016, merchandise exports declined by 8.7%, from US$1,232.3 million realized in 2015 to US$1,125.0
million in the corresponding period in 2016. Similarly, merchandise imports for the period January to June 2016
amounted to US$2,496.6 million, a 14.4% decline from US$2,917.1 million realized over the comparative period in
2015.

TABLE 2: BALANCE OF PAYMENTS DEVELOPMENTS (US$ millions)


2013 Actual

2014 Actual

2015 Estimate

2016 Projection

Current Account Balance

-2,539.20

-2,247.50

-1,519.40

-1,069.20

Trade Balance

-2,947.10

-2,589.10

-2,448.10

-1,890.40

Exports F.O.B

3,861.80

3,717.20

3,614.20

3,551.70

Imports F.O.B

6,808.90

6,306.30

6,062.30

5,442.10

Capital Account Balance

1,687.60

2,095.80

1,632.30

845.20

656.20
-195.40

111.50
-40.30

-138.60
-25.80

0.00
-224.00

Errors and Omissions


Overall Balance
Source: MPS, September 2016.

The current account deficit is projected to narrow down, from a deficit of US$1,519 million in 2015, to a deficit of
US$1,069 million in 2016, partly on account of the projected decline in the import bill. The projected decline in

imports in 2016 is mainly a result of the various measures being implemented to compress imports as well as the
economic slowdown which has reduced the countrys import absorptive capacity. The capital and financial
account balance is also projected to decline from a surplus of US$1,632 million in 2015 to a surplus of US$845
million in 2016, as a result of the projected decline in private sector offshore loans.

Foreign Payments
For the period January to 30 June 2016, banks processed, on a cash-flow basis, total outgoing payments
amounting to US$2.7 billion. This represents a 24% decline from US$3.5 billion for the same period in 2015. All
categories of outgoing foreign payments experienced decreases due to foreign exchange constraints and the
positive effect of the import compression policies which promote the importation of critical goods and services not
available on the local market.

TABLE 3: OUTGOING FOREIGN PAYMENTS (JAN-JUN)


CATEGORY
Consumption Goods
Capital & Intermediate Goods
Fuel & Electricity
Service Payments
Capital and Income Payments
Total Outflows

2016
667
650
356
580
418
2672

2015
851
777
514
656
716
3515

VARIANCE
-22%
-16%
-31%
-11%
-42%
-24%

SHARE 2016
25%
24%
13%
22%
16%
100%

SHARE 2015
24%
22%
15%
19%
20%
100%

Source: MPS September 2016

Structure of the Banking Sector.


As at 30 June 2016 there were 14 operating commercial banks, including POSB, 4 building societies, 4 deposit
taking microfinance and 164 credit only microfinance institutions. As at 30 June 2016, six (6) commercial banks,
including POSB, were offering mortgage finance, with tenors ranging from 10 to 20 years. Meanwhile, Lion
Microfinance Limited was licenced on 31 May 2016, bringing the number of licensed deposit-taking microfinance
institutions to four (4).

Capitalisation
The banking sectors aggregate core capital base increased by 5.80% from US$982.50 million as at 31 December
2015 to US$1.04 billion as at 30 June 2016, on the back of improved earnings performance. The banking sector
average capital adequacy and tier 1 ratios of 24.17% and 21.51% as at 30 June 2016, respectively, were above
the minimum required capital adequacy and tier 1 ratios of 12% and 8%, respectively. As at 30 June 2016, all
banking institutions were adequately capitalized and in compliance with prescribed minimum capital requirements.
As at 30 June 2016, six (6) other institutions had core capital levels above US$50 million.

Banking Sector Performance

Total banking sector deposits increased by 5.2% to US$5.9 billion as at 30 June 2016, from US$5.6
billion as at 31 December 2015.

Achieved a high average prudential liquidity ratio of 52.47% as at 30 June 2016 which was above the
regulatory minimum requirement of 30%.

The banking sector has been experiencing cash challenges. The worsening trade deficit and an
inclination towards holding and externalising physical cash have continued to drain cash from the
economy, and the adverse effects are transferred to the banking sector manifesting in cash shortages at
banking institutions.

The Reserve Bank has been engaging the banking sector to reduce lending interest rates to a maximum
of 15% agreed in May 2016

Banking sector loans and advances declined from $4 billion as at 30 June 2015 to US$3.7 billion as at 30
June 2016, largely as a result of cautious and prudent lending measures by banking institutions in
response to the operating environment.

The banking sector has remained profitable, recording an aggregate net profit of US$68.0 million for the
period ended 30 June 2016, from US$34.0 million in the corresponding period in 2015. Seventeen out of
eighteen operating banking institutions recorded profits during the period ended 30 June 2016 .
There has been an improvement in the level of banking sector non-performing loans (NPLs) to 10.05% as
at 30 June 2016, from 10.82% as at 31 December 2015.

GRAPH 1: NON-PERFORMING LOANS (DEC 2011- JUN 2016)


25.00%

20.45%
20.00%

Level of NPL Ratio

15.92%

13.46%

15.00%

15.91%

14.72%
10.82% 10.81%

10.00%

10.05%

7.55%

Level of NPL
Ratio

5.00%

0.00%
2011

2012

2013 Sep-14 Dec-14 Sep-15 Dec-15 Mar-16 Jun-16

The Reserve Bank adopted a number of policy measures to ameliorate the cash challenges including
importing cash, the promotion of the usage of plastic money and the use of other currencies within the multicurrency basket and cash withdrawal limits.

TABLE 4: KEY HIGHLIGHTS AND MEASURES OF THE MONETARY POLICY STATEMENT.


Policy Measure / Economic Development/ Highlight

Impact On The Economy /Customers/


Comments

.i. Ease of securing offshore loans.


Current Exchange Control policy states that all external
loans and commercial credit applications above US$10

Reduced turn-around time in line with

million, for both the private sector and state owned

the ease of doing business initiatives by

enterprises, need prior approval by the Reserve Bank. In

Government.

order to enhance the ease of securing offshore lines of


credit, the threshold of external loans that do not need
prior Exchange Control approval is, with immediate

POLICY MEASURES TO ENHANCE CONFIDENCE AND PRODUCTION

effect, increased to US$20 million.


ii. Incentivising inflows from the diaspora and private
transfers.

Augument export proceeds already being

The Bank shall be extending the export incentive scheme

received from other sectors with the aim of

unrequited

at a level of between 2.5-5% to diaspora remittances

improving liquidity within the economy.

including any form of private unrequited transfers on


funds remitted to Zimbabwe through normal banking
channels with effect from 1st October 2016.
iii. Nostro stabilisation facilities of US$215 million.

This will improve the countrys liquidity

Bank has managed to secure facilities in an amount of

situation and enhance production as the

US$215 million from international finance institutions. In

backlog

addition, negotiations are at an advanced stage to raise

payments is expected to reduce.

of

outstanding

foreign

US$330 million from regional sources.


Iv. US$20 million gold development initiative for small
scale

gold

producers.

Promote the mining of gold across the

The Reserve Bank has secured US$20 million for Fidelity

country in order to liquefy the economy.

Printers and Refiners (FPR) to support small-scale and

Small scale and artisanal miners are

artisanal mining operations in order to increase gold

able to access facilities to enhance their

production in the country.

business operations.

Policy Measure / Economic Development/ Highlight


v. US$10 million horticulture/floriculture pre- and postshipment

Impact On The Economy /Customers/


Comments
Promotion of horticulture and floriculture

facility.

business within the country with the

In order to increase production and exports of this sub-

intention of increasing production and

sector the Bank has arranged a facility of US$10 million

exports hence liquefying the economy.

for the pre and post-shipping requirements for producers

Horticulture and floriculture businesses

of horticulture and floriculture.

are able to access facilities to enhance


their business operations.

POLICY MEASURES TO ENHANCE CONFIDENCE AND PRODUCTION

vi. Resuscitation of the credit guarantee scheme.


The Reserve Bank is resuscitating the Credit Guarantee

Stimulate

Scheme under the Export Credit Guarantee Company

marginalized

(ECGC) to support SMEs to increase production with

productive
groups

lending
hence

to

the

stimulating

economic growth and poverty reduction.

effect from 1st October 2016.


vii. Establishment of an offshore financial centre.
The Bank is proceeding to putting in place mechanisms

Increases confidence and attract more

to establish an offshore financial centre as a confidence

deposits to the banking sector,

building measure under the auspices of the Special


Economic Zones.
viii. Guidance on Interest rates charged by microfinance;
The Reserve Bank has noted with concern that while
banks lending rates have declined to an average of
15% per annum, some microfinance institutions continue
to charge interest rates of over 20% per month. In this

Create inclusive financial systems within the


economy by reducing the average cost of
borrowing incurred by customers.

respect, microfinance institutions are expected to reduce


their lending rates in the spirit of building inclusive
financial

systems

and

sustainable

economic

development. Accordingly, all microfinance institutions


are urged to reduce their effective lending rates to a
maximum of 10% per month effective, 1 October 2016

CONCLUSION
The core message embedded in this Monetary Policy Statement is that the Zimbabwean economy which is under
stress as a result of harsh external conditions, structural imbalances and legacy policy inconsistencies and
contradictions requires urgent and decisive steps to generate investment-led recovery in order to revamp

production across all the sectors of the economy. Walking the Talk, is critical because the large current account
and fiscal gaps generated by these imbalances have inhibited private investment and restricted economic growth.

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