Govt lifts forex ban as COVID-19 stalks economy

Under scrutiny: Finance Minister Mthuli Ncube with permanent secretary George Guvamatanga and RBZ governor John Mangudya

Zimbabweans will once again be able to use US dollars to pay for goods and services, the RBZ announced on Thursday, nine months after the government banned the use of foreign currencies for most local transactions.

In a statement issued late Thursday, the RBZ said the move had been taken in a bid to head off the potentially dire consequences of the COVID-19 pandemic. Unlike its regional peers such as South Africa, Malawi and Kenya, which have recently responded with fiscal and monetary measures to the economic devastation wrought by the pandemic, Zimbabwe’s government has a limited policy toolkit at its disposal, apart from a currency hail Mary.

“Pursuant to His Excellency, the President’s 23 March 2020 address to the nation on additional measures to mitigate the devastating impact of COVID-19 on the Zimbabwean society and the economy, Government, through the Reserve Bank of Zimbabwe, would like to advise the public that it is making it easier for the transacting public to conduct business during this difficult period by making available an option to use free funds to pay for goods and services chargeable in local currency,” the RBZ said.

The central bank defines free funds as foreign currency receipts by individuals (through remittances), international organisations, Non-Governmental Organisations and embassies.

“The dispensation to use free funds will not only make payment for goods and services easier but will also promote social distancing as banks will be able to provide digital nancial services to their customers that include producers of gold, tobacco and cotton and recipients of diaspora remittances.”

The RBZ also announced the suspension of the managed float exchange rate system which the government announced earlier this month. In its place, the RBZ will maintain a fixed rate of ZW$25 to the USD, saying this measure would be reviewed when markets recover from the effects of COVID-19. 

In theory, this would mean that consumers have the option to pay for goods and services using foreign currency, or the local currency converted at the official rate of ZW$25 to the US dollar.

In practice, because the unofficial market prices the US dollar at significantly higher than that, businesses are unlikely to transact at the official level.

Other measures:

  • The Medium Term Bank Accommodation Facility, under which the productive sector could borrow at concessionary rates, has been increased by ZW$1 billion to ZW$2.5 billion, with the additional amount being earmarked for the 2020 winter wheat planting programme.
  • The Statutory Reserve Ratio has been reduced from 5% to 4.5% to help banks enhance lending
  • The RBZ benchmark interest rate has been reduced from 35% to 25%, in a bid to influence banks to reduce lending rates for distressed borrowers
  • The issuance of the Open Market Operations (OMO) Corporate Bills to enhance the monetary targeting framework that is necessary to support the exchange rate and to stabilise prices in the economy. 
  • Banks have agreed to suspend increases in charges for all electronic payments
  • The authorities are also pursuing a similar agreement with mobile network operators to reduce mobile banking and money transfer charges.