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+{"doc_id": "1c9dff35a19af7eddcc79758104f66ee", "text": "MONETARY POLICY STATEMENT \n \n \n \nIssued \n \nIN TERMS OF THE RESERVE BANK OF ZIMBABWE ACT \nCHAPTER 22:15, SECTION 46 \n \nBy \n \nDR. G. GONO \nGOVERNOR \nRESERVE BANK OF ZIMBABWE \n \nJanuary, 2009 \n \n…TURNING OUR DIFFICULTIES INTO \nOPPORTUNITIES. \n“Exports, Forex, Exports\" \n \n \n1 \n \nINTRODUCTION AND BACKGROUND................................................................................................... 4 \nTHE GLOBAL FINANCIAL CRISIS.........................................................................................................18 \nDETERIORATING TERMS OF TRADE..................................................................................................18 \nPOLITICAL ENVIRONMENT...................................................................................................................19 \nPRECONDITIONS FOR INVESTMENT AND CAPITAL INFLOWS….............................................20 \nFOOD SECURITY... .....................................................................................................................................22 \nBALANCE OF PAYMENTS SUPPORT....................................................................................................23 \nTHE CURSE OF NATURAL RESOURCES... ..........................................................................................24 \nTHE CORRUPTION BUG...........................................................................................................................25 \nTHE CASH SITUATION... ..........................................................................................................................27 \nFINANCIAL SECTOR INDISCIPLINE... .................................................................................................29 \nBEHAVIOURAL TRAITS... ........................................................................................................................32 \nSANCTIONS… ..............................................................................................................................................36 \nTHIS POLICY STATEMENT….................................................................................................................37 \nFINANCIAL SECTOR DEVELOPMENTS ..............................................................................................40 \nArchitecture of the Banking Sector..............................................................................................................44 \nCurrent Challenges in the Financial Sector................................................................................................44 \nRampant Financial Indiscipline… ...............................................................................................................44 \nViability Challenges in the Asset Management Industry ….....................................................................46 \nInadequate Regulatory Framework for Non-bank Financial Institutions ….........................................48 \nMEASURES TO ENHANCE FINANCIAL STABILITY ........................................................................51 \nRisk-Based Supervision.................................................................................................................................52 \nMinimum Capital Requirements … ............................................................................................................53 \nEnhancement of Corporate Governance, Risk Management and Internal Control Systems …..........54 \nBasel II Implementation …...........................................................................................................................57 \nEffective Supervision of Banking Groups …..............................................................................................58 \nClose Monitoring Of Liquidity Risk…........................................................................................................59 \nFinancial Innovation ….................................................................................................................................60 \nNATIONAL PAYMENT SYSTEMS...........................................................................................................61 \nClearing and Settlement................................................................................................................................62 \n \n2 \n \nReal Time Gross Settlement System (RTGS) .............................................................................................62 \nNon Cash Methods of Payment ....................................................................................................................63 \nManufacturing................................................................................................................................................65 \nTourism and Distribution..............................................................................................................................66 \nMONETARY DEVELOPMENTS...............................................................................................................74 \nTHE ZIMBABWE STOCK EXCHANGE..................................................................................................75 \nThe Industrial Index ......................................................................................................................................77 \nMONEY MARKET POSITION ..................................................................................................................83 \nGovernment Expenditures…........................................................................................................................86 \nEXPORT PERFORMANCE ........................................................................................................................87 \nAgriculture Sector..........................................................................................................................................88 \nManufacturing Sector....................................................................................................................................92 \nMining Sector..................................................................................................................................................94 \nTourism Sector ...............................................................................................................................................95 \nNEW POLICY MEASURES......................................................................................................................100 \nCURRENCY REFORMS............................................................................................................................100 \nEXTENDED SPECIAL FOREIGN EXCHANGE LICENCED SHOPS..............................................103 \nAdoption of Dual Pricing Arrangements ..........................................................................................................109 \nLEGISLATIVE SUPPORT ........................................................................................................................131 \nGOODS PURCHASE VOUCHERS IN FOREIGN EXCHANGE........................................................132 \nTO DOLLARISE OR NOT TO DOLLARISE.........................................................................................134 \nRESERVE ASSETS.....................................................................................................................................134 \nEXCHANGE RATE MANAGEMENT.....................................................................................................136 \nLOCALISATION OF PLATINUM AND DIAMOND FCAs.................................................................137 \nINTEREST RATES.....................................................................................................................................138 \nDEVELOPMENT AND ENERGY SECTOR FINANCE.......................................................................140 \nFINANCIAL SECTOR CONSOLIDATION ...........................................................................................141 \nSTATUTORY RESERVES MANAGEMENT.........................................................................................142 \nSTATUTORY RESERVE LEVELS..........................................................................................................142 \nFCA RETENTION BY EXPORTERS......................................................................................................144 \n \n3 \n \nLIQUIDATION OF FCAs ..........................................................................................................................144 \nWAY FORWARD ON THE ZIMBABWE STOCK EXCHANGE .......................................................145 \nSHARE TRADING FOREIGN EXCHANGE DISPOSAL TO THE RESERVE BANK...................146 \nGOLD PRODUCERS..................................................................................................................................147 \nRetention… ...................................................................................................................................................148 \nPayment Modalities…..................................................................................................................................148 \nGOLD LOANS .............................................................................................................................................149 \nGOLD SECTOR ARREARS......................................................................................................................149 \nEXCHANGE CONTROL POLICY DEREGULATION........................................................................151 \nEXCHANGE CONTROL DEREGULATION POLICY MEASURES ................................................155 \nREVOLUTIONISING AGRICULTURE .................................................................................................170 \nAGRICULTURAL PRICING ....................................................................................................................171 \nTOBACCO AND COTTON .......................................................................................................................172 \nFCAs FOR FARMERS................................................................................................................................172 \nINTERNATIONAL FINANCING FOR AGRICULTURE....................................................................173 \nINFRASTRUCTURE DEVELOPMENT .................................................................................................175 \nWORKING CAPITAL FINANCE FOR FARMERS..............................................................................175 \nROLE OF THE GRAIN MARKETING BOARD (GMB)......................................................................176 \nZIMRA AND PARASTATAL FOREIGN CURRENCY ACCOUNTS................................................177 \nINSURANCE AND PENSION FUNDS.....................................................................................................178 \nOTHER SUPPORT MEASURES..............................................................................................................179 \nEXTERNAL DEBT DEVELOPMENTS ..................................................................................................184 \nDOMESTIC DEBT DEVELOPMENTS...................................................................................................187 \nDomestic Debt Stock by Tenor ...................................................................................................................188 \nDomestic debt by Holder.............................................................................................................................189 \nGovernment Domestic Debt by Holder .....................................................................................................189 \nCompliance with Prescribed Asset Ratios by Insurance and Pension Funds.......................................190 \nOverdraft Facility.........................................................................................................................................191 \nShort-term Trade Facilities.........................................................................................................................192 \nCONCLUSION.............................................................................................................................................193 \n \n4 \n \n1. \nINTRODUCTION AND BACKGROUND \n \n1.1 This Monetary Policy Statement which is the first in my \nsecond term of office, is issued in terms of Section 46 of \nthe RBZ Act chapter 22:15. The Statement comes at a \nmost difficult time in the short history of our country, \nwhen both the corporate and household sectors of our \neconomy are under a crippling spell of extraordinary \nhardships, occasioned by a combination of severe \ndomestic and external factors whose impact has been \nprofoundly negative on everyone across the board. \n \n1.2 Indeed, there is neither the need to dramatise nor \nexaggerate anything, and not least of all, to placate \nanyone to appreciate the obvious and very painful fact \nthat life in our country has been, especially over the last \ntwelve months, extremely difficult for the majority of \npeople, many of whom remain at a loss as to why history \nhas allowed things to turn out this way. \n \n1.3 While it is of no consolation to Zimbabweans that the \nwhole world is today confronted with extraordinary \nhardships calling for unorthodoxy and extraordinary \n \n5 \n \ninterventions, it is a fact though that our attitude towards \nthe challenges facing us will, in a large measure, \ndetermine the extent, length and severity of the pain we \nwill experience during these difficult times. \n \n \n1.4 It comes as no consolation to many, myself included that \nleading the pack of distressed economies today are some \nof those countries who yesterday were shouting the \nloudest and condemning this Government and the RBZ \nGovernor’s interventionist polices in the face of \nextraordinary \ncircumstances \ntwice \nthe \nsize \nand \nmagnitude of what is confronting them today. \n \n1.5 Indeed it comes as no consolation to this Governor that, \nto the letter and word, fellow Central Bankers the world \nover now realise what it means to print money inorder to \nsave their essential industries and sectors of the \neconomy. Regarding their current public statements and \njustifications for departing from the conventional, one \nwould be forgiven for the temptation among some \n \n6 \n \nZimbabweans to ask for intellectual rights compensation \nto those statements and behaviour. \n \n1.6 It comes as no consolation to me as Governor that very \nstrong language has been used by both the US President \nBarack Obama and Prime Minister Gordon Brown \namong other leaders of the world; condemning the \nbehaviour of Wall Street bankers and their peers in other \nparts of the world and blaming them for plunging the \nworld into crisis the global economy finds itself in. The \ntwo leaders, backed up by their Parliaments have \nproposed tough measures that must be applied to the \nbankers. \n \n1.7 Yet, when this Governor has talked tough and \nrecommended action against our own bankers, I have \nbeen accused of being a personal, vindictive, jealous and \nunreasonable \nwith \nsome \nnational \nleaders \nand \nstakeholders coming to the defence of the errant bankers \nbecause of their own vested interests. \n \n \n \n7 \n \n1.8 Well, not this time around. Any banker who thinks their \nlicence is a permission to wreck havoc in this economy \nwill meet with unprecedented wrath of both punitive and \nlegal measures without recourse to the emotional \ndemocracy we have witnessed in the past that has \nprevented justice from being delivered. \n \n1.9 We should count our fortunes as Zimbabweans that at \nleast we are still breathing even though our legs are now \ntoo sore to help us withstand the dead weight that we are \ncarrying because the forces we have been fighting never \nexpected us to still be standing today. \n \n1.10 In dealing with the enormous challenges still with us, my \nadvice is that a defeatist attitude will not do and worse \nstill, a vindictive disposition towards one another will \nonly serve to delay the date of our economic salvation. \n \n1.11 What will make a positive difference is our level-\nheadedness in the face of these surmountable challenges \nand our collective commitment to deal with the \n \n8 \n \ndifficulties head-on, as was shown through a packages of \nmeasures unveiled in the 2009 Budget last week. \n \n1.12 One other observation we make is that, as a Nation, we \nare currently vulnerable to many poisonous and divisive \nmissiles \nand \npreoccupations, \nranging \nfrom \nself-\ndiscouragement to self-pity; from hopelessness to self-\ndoubt; and are lurching from one pillar to another, all in \nthe effort to hide away from taking collective \nresponsibility for our current state of affairs. \n \n \n1.13 If we are not blaming MDC-T leader Mr. Morgan \nTsvangirai or Professor Arthur Mutambara for all our \nwoes, we are finding fault with President Robert \nGabriel Mugabe; if we are not finding fault in these \nthree we are blaming the West, the East, North or South, \nthe US, Russia or China for one terrible action or \nomission; and if it is not the weather to blame for our \nunderperformance on farms or the mines, it must be the \nReserve Bank or someone else to blame. \n \n \n9 \n \n1.14 Such is the level of our mental imprisonment that we can \nnever pin responsibility or search for solutions to our \ntroubles from within ourselves first before pointing at \nothers. \n \n1.15 Even the United States of America where the current \ndevastating global financial crisis started, preoccupied \nwith this blame game thing as ourselves here. Both \nRepublicans and Democrats realise the commonality of \ntheir fate as Americans first and not as separate party \nsupporters. \n \n1.16 They are getting on with the essential task of finding \nsolutions to their problems in a united manner across \nthe divide unlike what we are doing here. The same can \nbe sited of other countries the world over currently in the \nmiddle of an economic meltdown. \n \n1.17 In Zimbabwe, a common tactic in this blame game has \nbeen to single out the Central Bank and Central Bank \nGovernor with easy-to-make claims that I am personally \nto blame for the self-evident and very painful economic \nsituation afflicting just about everyone in our country \n \n10 \n \ntoday. If it makes people feel better and as a \nprecondition for the country to move forward, I accept \nblame in full for our economic crisis to the extent that no \none else in the private sector, the international \ncommunity, no on e in our parastatal and local authorities \nleadership are prepared to accept blame. \n \n \n1.18 As Governor, I strongly feel that we have now reached a \ncritical point in the life of our country where those who \nhave sought refuge in playing the blame game should \ndesist from this distractive approach. There is so much \nthat needs to be done by each and everyone of us to \nwaste our energies on yesterday while today remains \nunattended and tomorrow is being lost to the \ndetermination by others. \n \n1.19 For a forgetful Nation that we have become, it is \nopportune that I remind all by way of common cause, \nthat over the last five or so years, the Central Bank under \nmy proactive watch has been at the forefront of doing \ntwo things, which I intend to continue doing in this my \nsecond and last term. \n \n11 \n \n \n1.20 First, I have spared no moment or opportunity, especially \non occasions such as this, to advise the leadership of all \nkey sections of our nation in government, business, \npolitical parties, civil society, trade unions and churches \non the required medium to long term policy measures to \nturnaround the fortunes of our economy in pursuit of \nprosperity for all Zimbabweans. \n \n1.21 Second, I have not hesitated to formulate and implement \nextraordinary urgent measures, most of which have \nbecome the standard approach the world over, to \naddress the extraordinary circumstances when it has \nbecome necessary to do so. We have had to survive \nunder very harsh and more often than not, a hostile \ninternal and external environment without precedent \nanywhere in this world. \n \n1.22 The public record shows the policy advice I have \nproffered in my previous monetary policy statements and \nwhose merit, sincerity and purity of intentions, I believe, \nspeaks for itself, has either not been seriously discussed \nor debated, let alone implemented whole heartedly by \n \n12 \n \nsome of those seeking to point fingers at the Central \nBank and me personally today. \n \n1.23 Again, as the record shows, the urgent extraordinary \nmeasures we have invoked have invariably been in \nresponse to the need to fill a gap or address an \nemergency created either by a major policy or economic \nplayer or players in the country or by some external \nplayer or players hostile to Zimbabwe, including the \nunavoidable natural calamities in the mould of droughts, \nfloods or disease outbreaks. \n \n1.24 The price control war of June to October 2007 between \nthe business sector on one hand and labour, civil society, \nconsumers and Government on the other is as much a \ncase in point as are the illegal sanctions that this country \nhas been fighting against since 2001. The BACCOSI \nprogramme which some in industry despise today was \nborn out of the ashes of these needless fights. \n \n1.25 In effect, the urgent extraordinary measures that the \nCentral Bank has implemented under my direction have \nbeen no more than fire-fighting. \n \n13 \n \n \n1.26 What my team and I find as most astounding is that it is \nthe very same quarters, some inside and others outside \nthe country, with yet some inside and others outside \npolitics who have, in every instance, started the \ndangerous fires that we have had to put out through \nextraordinary measures, who have also been the \nloudest in the blame game against the Central Bank \nand its Governor. \n \n1.27 As a result, we have had an unfortunate twist of logic in \nwhich economic saboteurs and financial arsonists (from \nthe BURNING concept) who have been stroking up all \nmanner of social, political and economic fires of \ndestabilization all over the place are now masquerading \nas economic experts, blaming and demonizing the \nCentral Bank and this Governor for putting out the \nfires they started in the first place. \n \n1.28 You only need to visit the wires or the corridors of \nidleness and misfortune where these people spend \nmost of their time to appreciate what has gone wrong \nwith some amongst us who pose as civilised \n \n14 \n \npersonalities during the day and yet at night are, in \nreality, what authors Paul Babiak and Robert D. Hare \ndescribe in their book entitled “Snakes in Suits: When \nPsychopaths Go to Work” (Harper Collins Publishers \n2007) \n \n1.29 Against this background, I wish to place on record and \nto do so with a sense of personal and national pride \nthat as Governor of the Central Bank I have no \nregrets about the fact that my team and I have not \nhesitated to put out the fires that some vested \ninterests have been setting up to burn our country’s \neconomy in the hope that the “bus can crash.” \n \n1.30 Well, perhaps the message which must go out loud and \nclear to all “Snakes in Suits” and those who wish us ill \nis that this bus is not about to, and will not, crash. \nFurthermore, the message needs to be delivered that \nthe bus driver is also not about to take any leave of \nabsence, at least of all before the job is done and done \nwell. \n \n \n15 \n \n1.31 It is my considered judgement that public service, and \nindeed leadership itself, is about taking responsibility \nfor one’s decisions, actions and inactions. \n \n1.32 Doing nothing as other would have wanted us to, in the \nface of raging fires in the economy or being indifferent to \nthose fires cannot be a discharge of any responsibility. \n \n1.33 Unfortunately, there are some out there, especially the \nsaid economic, social and political arsonists I have \nreferred to earlier, who think they know my duties as \nGovernor of the Central Bank than I either know \nthem myself or than I have actually discharged them \nin our particular circumstances. I am sure they can’t wait \nto say the same to my colleague Central Bank Governors \nthe world over who are travelling the same route of \nquasi-Fiscal Operations or printing money in the face of \nextraordinary circumstances. \n \n1.34 In my view, the challenge we have faced and the \nresponsibility I have discharged have been equivalent not \nonly to putting out very damaging fires deliberately \n \n16 \n \nstarted but also to mending a roof of a house on fire with \nmultiple leaks in the middle of a heavy storm. \n \n1.35 While we can all see that the roof is still leaking at least \nfor now, and that some fires are still raging, the \ncompelling truth is that many other leaks which could \nhave sunk the ship had we chosen to leave them \nunattended, have indeed been mended and some fires \nhave been put out. \n \n1.36 Yes, of course, evidence is there for everyone to see that \nsome leaks are still there and some fires are still raging \nabove our heads in the form of : \n \n1.37 The current hyperinflationary environment, the critical \nforeign exchange shortages, inadequate inputs, and \nthe general capacity underutilisation across all major \nsectors of the economy. Indiscipline and corruption as \ncited in the 2009 National Budget Statement by the \nActing Minister of Finance, among several others, are \nleaks and fires that have continue to undermine \noverall economic recovery, while at the same time \n \n17 \n \nretarding the country’s progress on achieving the \nMillennium Development Goals. \n \n1.38 And, whereas in the past, some in our midst may have \ndisplayed Ostrich-like tendencies when confronted with \nchallenges, the time has come to face and confront our \nchallenges with honesty and fortitude, knowing fully \nwell however that we have to do most of the clean-up \nand rescue job ourselves more because everyone else in \nthe world is preoccupied with their own problems and \nclean-up jobs to worry too much about us. The \nMinister’s Budget of 29 January, 2009 presents an \nopportunity for Zimbabweans to pick up the pieces of our \njig-saw puzzle and reconstruct our castle from the firm \nfoundation laid out in the 2009 Budget by the Acting \nMinister of Finance, the Hon. Senator P. A. Chinamasa. \nIt is the only preoccupation available in town. \n \n1.39 Before unveiling the package of Monetary Policy \nmeasures to take us forward, it is, like was done in the \nFiscal Budget last week, necessary for me to repeat \nsome realities cited by the Minister last week, against \n \n18 \n \nwhich this Monetary Policy has been and indeed the \nNational Budget was crafted. \n \nTHE GLOBAL FINANCIAL CRISIS... \n \n1.40 In the first place, and broadly speaking, there is the \nstubborn reality of the effects of the current global \nfinancial crisis, which has been dubbed the worst since \nthe 1930s. The major global economies are facing \nunprecedented economic challenges marked by a tight \ncredit crunch. It is trite to mention that when these \neconomies catch a severe cold, economies in the \ndeveloping world sneeze. \n \n1.41 In the midst of this global credit crisis many developing \ncountries, including Zimbabwe, are finding it extremely \ndifficult to raise developmental and general productive \nand trade finance in offshore markets. \n \nDETERIORATING TERMS OF TRADE... \n \n1.42 The precipitous decline in international commodity \nprices, particularly for platinum, gold, diamonds, nickel \n \n19 \n \nand \ncopper \nis \nalso \na \nstubborn \nreality \nthat \nZimbabweans have to contend with, as this has seen \nthe country taking a huge knock on its overall mining \nexport earnings over the past 12 months. \n \nPOLITICAL ENVIRONMENT... \n \n1.43 Among the most stubborn realities that are at the heart \nof the background to this Monetary Policy Statement is \nthe protracted search for a political settlement in our \ncountry since the inconclusive harmonised election of \nMarch 29, 2009. I understand however that we may at \nlast be heading in the right direction if the media reports \nwe have been having is anything to go by, but as before, \nwe must never be tempted to count our chickens before \nthey are hatched. \n \n1.44 Although the impact of a political climate on business \nseems so obvious as not to warrant any mention, it is a \ncommon but often overlooked fact that the economic \nfortunes of any country are closely tied to its political \ncircumstances. \n \n \n20 \n \n1.45 Because the post March 29, 2008 election difficulties we \nare experiencing are a political reality, these difficulties \nare weighing down the collective energy of the nation, as \nwell as giving easy excuses that are being used to justify \nthe lack of international capital flows into the country \non grounds that we are an unstable country lacking in \npeace, \npolitical \nmaturity, \ntranquillity, \nand \npredictability, that we do not deserve support or to be \ntaken seriously. \n \n1.46 This political instability in our planning environment \nis, therefore, a stubborn reality that has to be taken into \naccount though I believe the situation should not have \nbeen allowed to go on for this long and as Zimbabweans, \nwe must now deal with and face the negative economic \nconsequences of this unacceptable situation. Talk of \nblaming the Central Bank Governor for it! \n \nPRECONDITIONS FOR INVESTMENT AND CAPITAL \nINFLOWS… \n \n1.47 It is fact that given the current global financial crisis and \ncredit crunch, every nation is trying to claw back and \n \n21 \n \nfind refuge in their capital reserves, leaving very little \navailable for investment outside their boarders. It \nfollows therefore that only those countries with \nexceptional \ninvestment \nopportunities, \nincentives, \ninvestment codes and sufficient legal protections have a \nchance to attract scarce investment capital. \n \n1.48 As has been pointed out before in my many Monetary \nPolicy Statements, Zimbabwe needs to pronounce itself \nad-infinitum and with legal evidence that: \n \n• \nWe subscribe to the notion of private property rights \nand the enforceability of legal agreements that we \nenter into as a country or as private citizens; and \n \n• \nThat we will remain flexible and mean well when it \ncomes to those untenable clauses or sections \npertaining to our Investment and Indigenisation \nlaws. \n \n1.49 These are hard realities we have to reckon with, without \nwhich investment inflows into our country will remain \n \n22 \n \nsub-optimal and hence delay our quick recovery. We are \nconfident that the appropriate legislative arms of \nGovernment will be ceased with this advice and do \nwhatever is legally and politically necessary to facilitate \ninvestment inflows into the country as we open a new \nchapter in this New Year. \n \nFOOD SECURITY... \n \n1.50 Against the background of repeated droughts and the \nadverse effects of foreign exchange shortages on the \nagro-inputs supply chain, the country’s food security \nstatus needs major improvement so as to uplift the \ngeneral quality of life for the majority of Zimbabweans. \n \n1.51 The food supply gap, thus, has remained a major pressure \npoint for us, as the limited foreign exchange inflows have \nhad to be directed towards supplementary food imports, \nas opposed to going towards new wealth creation. \n \n1.52 It is for this reason that as the Central Bank, we have \nbeen making and will continue to make clarion calls for \nour farmers to fully utilise their land, supported by \n \n23 \n \nagricultural policies and pricing systems that promote \nviability of farmers through liberalized market systems as \nannounced last week by the Hon. Acting Minister of \nFinance, Senator P. A. Chinamasa. \n \nBALANCE OF PAYMENTS SUPPORT... \n \n1.53 \nThe absence of capital in the form of lines of credit, and \nbalance of payments support for Zimbabwe due to the \nsanctions imposed on the country are another reality \nthat is having a significant bearing on the state of our \neconomy today and therefore adversely affecting our \nplanning options, as well as limit the range of effective \npolicy measures at our disposal. \n \n1.54 \nLack of balance of payments support has diminished the \nflexibility of Monetary Policy options, as the country has \nhad to rely solely on internal domestic bank finance and \nother appropriate financial engineering schemes and \ngymnastics to meet its recurrent and developmental \nprogrammes. \n \n \n24 \n \n1.55 \nWe will continue to engineer and play those gymnastics \nas long as we remain under the yoke of sanctions because \nour survival as a people is not negotiable. \n \nTHE CURSE OF NATURAL RESOURCES... \n \n1.56 \nZimbabwe paradoxically stands as one of the world’s \nmost endowed countries when it comes to the \nabundance of God-given natural resources and human \ncapacities. \n \n1.57 \nThe fact that in spite of the presence of so much mineral \nresources and human capacities in our country, we \nremain unable to utilize the same signifies the need for \na total paradigm shift in the way we conduct our \neconomic and financial affairs as a country, as a people \nand Government. \n \n1.58 \nThis Monetary Policy Statement is coming at a time \nwhen very little, if any, value is being unlocked from the \ncountry’s vast diamond resources, whilst the abundant \ncoal bed methane gas also remains completely untapped, \n \n25 \n \namong several other minerals that are highly under-\nextracted. While this is a stubborn reality for now, it is \nheartening to note that Government through the recently \nannounced National Budget has committed itself to \nserious action to redress this catastrophe of poverty \namidst plenty. \n \nZimbabwe’s Mineral Resources \n \nMineral \nEstimated Resource \nBase \nCurrent Annual \nExtraction Rate \nGold \n13 million tonnes \n6 tonnes (2008) \nPlatinum \n2.8 billion tonnes \n2.4 million tonnes \nChromite \n930 million tonnes \n700 000 tonnes \nNickel \n4.5 million tonnes \n9 000 tonnes \nCoal \n26 million tonnes \n4.8 million tonnes \nDiamonds \n16.5 million tonnes \nInfancy \nIron ore \n30 billion tonnes \n300 000 tonnes \nCopper \n5.2 million tonnes \nNone \nCoal Bed methane \nLargest known \nreserves in Southern \nAfrica \nNone \n \nTHE CORRUPTION BUG... \n \n1.59 As is the case in any environment where economic \nfundamentals are constrained, price controls rife, with \n \n26 \n \npricing distortions the order of the day, the prevalence of \ncorruption is inescapable. \n \n1.60 Corruption does not only retard overall economic \nrecovery due to its generation of disincentives for \ngenuine economic processes but it also imposes a \ndeadweight loss to society through phenomenal increases \nin transactions costs on the back of the attendant \ncorruption levies and premiums. \n \n1.61 We are pleased to again observe that Government has \nremoved most if not all manner of price controls and \npricing distortions as announced in the National Budget \nlast week. This move together with the stiff fines and \npenalties prescribed in foreign currency for different \nlevels of indiscipline should go a long way towards the \nreduction and eventual elimination of the bug. \n \n27 \n \nTHE CASH SITUATION... \n \n1.62 Repeatedly, and regrettably, the country has suffered \nbouts of cash shortages which have disadvantaged both \nthe corporate and household sectors of the economy. \n \n1.63 As a country, we have to come to terms with this \nstubborn reality that we were put under economic \nsanctions by Germany which unilaterally cut a 50-year \nold contract to supply us with currency printing paper, \nmachinery, spare parts and inks without notice in July \nlast year. \n \n1.64 The printing capacity, at Fidelity printers is fixed at 2 \nmillion pieces per day and changing this would require \nUS$500 million in investment costs and a minimum lead \ntime of 24 months. With the daily fixed 2 million pieces \nlimit, the growing demand for currency can only be met \nthrough increases in the denominations of the notes. \n \n1.65 This stubborn reality which is beyond the control of the \nCentral Bank, has been lost to those in our country who, \n \n28 \n \nwhile they do not want to take responsibility for \nanything, are nevertheless very quick to blame the \nGovernor for the high denominations as if there is \nany other alternative given the ever growing demands \nfor cash in a hyperinflationary environment. \n \n1.66 If you all want to withdraw all your money from the \nBanks in one day and do not give us the lead time to print \nconvenient denominations, we have no choice but to \nsacrifice your convenience and give you all your money \nbut in large denominations because of printing capacity \nconstraints. It is both an engineering and a physical fact \nwhich the Governor can do very little about even with \nthe best heart and will in the world. \n \n1.67 As Zimbabweans, we must thus tell each other the truth \nabout what is and what is not possible. It is not possible \nto have our cake and eat it at the same time. \n \n1.68 It is therefore regrettable that some stakeholders here at \nhome who should know better, have labelled the cash \nshortages as “Reserve Bank mischief”, and thus, have \ngone about campaigning for harm to come the way of the \n \n29 \n \nCentral Bank team or the Governor in his personal \ncapacity. \n \n1.69 This demonstrates beyond doubt that some important and \nyet “do nothing” elements in our society have sunk to \nnew lows without precedent in the history of \nimaginations. \n \nFINANCIAL SECTOR INDISCIPLINE... \n \n1.70 Events during the last quarter of 2008 showed that the \nfinancial sector had fallen back into territories of \nindiscipline and general malaise, resulting in the \ncontamination of ethics in such institutions as the \nZimbabwe Stock Exchange (ZSE) which invented the \ndeadly phenomena of “burning money”. \n \n1.71 As I have warned the Nation on countless times, “the \nphenomenon of burning money”, which was being \ncynically equated to the miracle of Jesus Christ feeding \nthe multitudes with 5 loaves of bread and 2 fish, was a \nmost inflationary distortion in our economy, as many \n \n30 \n \npeople became instant multi-sextillionaires out of doing \nabsolutely nothing other than stringing-up “connections” \nso to speak. \n \n1.72 The new measures herein contained are production \noriented and have no room for the lazy and idle \nminds and bodies to exist in our midst, let alone eat \nfrom the sweat of others. The measures constitute a \nwar against idleness as without some gainful activity, \nyesterday’s roadport and world-bank sextillionaires \ndestined for the starvation market much more than has \nbeen the case for many of their kind since November 20, \n2008. \n \n1.73 As true as the sun rises and sets each day, the “miracle” \nof “burning” money could not be sustained by men and \nwomen born of flesh and pretending to have the \nsupernatural powers of our Lord Jesus Christ. It was soon \nto back-fire and consume those who were stroking the \nfires in the first place. \n \n \n31 \n \n1.74 Suffice to note that this phenomenon of indiscipline in \nbanking and stock markets is precisely what has largely \nbeen responsible for the current global economic crisis \nparticularly in the USA. \n \n1.75 Consequently, Governments in US, Europe and other \nemerging market economies have bailed out and continue \nto bail out troubled but corrupt institutions built from, \nand by what amounts to pyramid fraudsters. \n \n1.76 For instance, in the US, Madoff was involved in a \nUS$50 billion fraud in a pyramid scheme. Before 20 \nNovember 2008, we had many “Madoffs” in our midst \nsome of whom are still licking their wounds from the \nZimbabwe Stock Exchange crash. \n \n1.77 Furthermore, according to international media reports, \nthe fifth richest man in Germany, Adolf Merckle \ncommitted suicide at the beginning of January 2009 \nfollowing a significant loss on the equities trade. \n \n1.78 Not to be outdone, recently too, an Indian computer \ngiant, Satyam Computer Services was involved in a \n \n32 \n \nUS$1 billion fraud in the midst of the on-going global \nfinancial crisis. \n \n1.79 These are but a few examples of outright greed elsewhere \naround the world whose moral equivalent many of us \nhave witnessed here at home over the last few years \nunder “burning” phenomenon which created impossible \ndemands for cash and pushed up the country’s \nhyperinflation now blamed on the Reserve Bank and the \nGovernor personally by our “Snakes in Suits” economic \nexperts. \n \nBEHAVIOURAL TRAITS... \n \n1.80 As one macro-economic unit called Zimbabwe, we need \nto re-examine our actions. Our individual and collective \nactions of the past have not taken us anywhere, \nparticularly in the areas of advancing our collective \nsocio-economic programmes. \n \n1.81 The behaviour of some of our politicians too needs \nserious review not least because some of them talk the \nmost and point dirty fingers at others while they do \n \n33 \n \nbetween little and nothing to improve the bad situation \non the ground and have never taken responsibility for \nanything beyond playing the blame game. \n \n1.82 The behaviour of Government departments which \ndirectly \nimpacts \non \npolicy \neffectiveness \nand \nimplementation has to change. Some heads of \nGovernment departments are now behaving less as \ntechnocrats and more like the legions of “do-nothing” \npoliticians in our midst. \n \n1.83 The behaviour of our diplomats also needs to change for \nthe better for the same reasons. \n \n1.84 We have to maximize output on our farms, mines and \nindustry at large. The behaviour of our productive \nsectors, thus, has to change too. \n \n1.85 The Zimbabwean economy has been progressively \ndeclining \nfor \nthe \npast \ndecade, \nreflecting \nunderperformance, and indeed poor performance, in the \nbroad sectors of the economy. \n \n34 \n \n \nTAKING ON BOARD THE IMF AND ITS ADVICE… \n \n1.86 The IMF, in its latest evaluation of our situation, dated \n13 January, 2009, described Zimbabwe’s circumstances \nas grave, and prescribed the following way forward: \n \n(a) Substantial fiscal adjustment, including the termination \nof all quasi-fiscal activities by the Reserve Bank, a \nmatter fully dealt with in the Fiscal budget 2009 and in \nthis Statement. We do not regard this as an issue \nanymore. \n \n(b) Liberalisation of price controls and imposition of hard \nbudget constraints on public enterprises, a matter again \nadequately dealt with in the budget and one which we do \nnot regard as an issue anymore. \n \n(c) Exchange rate unification and removal of all restrictions \non \nmaking \npayments \nand \ntransfers \nfor \ncurrent \ninternational transactions; - a matter fully addressed and \n \n35 \n \ndealt with in this Statement and therefore a non-issue \nanymore. \n \n(d) Establishment of a strong nominal anchor for monetary \npolicy, again a non-issue anymore since both the 2009 \nBudget and this Monetary Policy Statement addresses the \nissue fully. \n \n1.87 What I find surprising if not downright dishonest is that \neven before the IMF issued this statement, the Reserve \nBank had already publicly declared that effective this \nJanuary, 2009, all these matters would be streamlined in \nview of the anticipated normalisation of the political \nenvironment and the resumption of the functionality of \nkey public sector institutions, as well as the return to \nwork of the productive sectors of the economy whose \ncollapse had necessitated extraordinary interventions by \nthe Monetary Authorities, including through bail-outs \nand quasi-fiscal operations which are the order of the day \ntoday the world over. \n \n \n36 \n \n1.88 All that we ask of our multilateral partners is their \nfairness, objectivity and sincerity in dealing with our \nsituation. \n \nSANCTIONS… \n \n1.89 Although to some this might now sound like what used \nto be called a “broken record” before the digital era, I \nwill continue to point out the truth that the country’s \ndeclining economic performance is also inextricably \nbound to the debilitating effects of sanctions imposed on \nthe country, following the watershed Land Reform \nProgram embarked on by Government in 2000. \n \n1.90 Declared and undeclared sanctions against Zimbabwe \nhave been characterized by suspension of balance of \npayments support, and the cancellation of life-line \nprojects, thereby exacerbating the plight of the \nvulnerable groups in Zimbabwe. \n \n \n37 \n \nTHIS POLICY STATEMENT… \n \n1.91 Against the backdrop of these realities and the urgency of \nthe economic difficulties at hand, this Monetary Policy \nStatement seeks to achieve the following objectives, \nwhich are also consistent with the recommendations on \npolicy reforms by SADC, the IMF as well as by other \nwell meaning centres of excellence here at home and \nabroad: \n \n(a) To institute currency reforms which bring transactional \nconvenience to the public; \n \n(b) To remove the pricing distortions in the economy in a \nmanner that promotes producer viability; \n \n(c) To streamline and close the Reserve Bank’s quasi-\nfiscal operations within the framework of a more \ncoherent fiscal management system, leaving the Central \nBank with the core responsibilities of managing price \nstability \nfactors, \nbanking \nsector \nlicensing \nand \n \n38 \n \nsupervision in addition to official foreign exchange \nreserves management; \n \n(d) To liberalise the foreign exchange market in a manner \nthat sees the exchange rate returning to serving its key \nfunction as a strategic policy instrument for the \nachievement of both productive and resource allocative \nefficiency in the economy; \n \n(e) To revolutionise agriculture by adopting market and \ninvestor friendly farm policies, supported by the call \nfor active participation of the private sector, as well as \nregional and international investors in supporting our \nfarmers; \n \n(f) To deepen financial sector stability by enhancing the \nprudential supervisory guidelines, particularly in view of \nthe contemporary global financial system; \n \n(g) To promote the general availability of goods and \nservices in the economy through the liberalization and \nthe allowance of the circulation of multiple currencies \n \n39 \n \nin the economy, while also maintaining and indeed re-\ndeveloping the intrinsic value of the Zimbabwe dollar as \nthe country’s sovereign and legal tender which in effect \nmeans “multi-currencying” rather than “dollarizing” \nthe economy; \n \n(h) To support gold producers through innovative ways \nthat enable the sector to retain more foreign exchange, as \nwell as allowing them to leverage on their production to \naccess regional and international gold-backed lines of \ncredit; \n \n(i) \nTo revive and defend the country’s educational \nsystem through Exchange Control Regulations that bring \nviability to schools while at the same time leaving room \nfor the vulnerable groups to continue to access quality \neducation by using the local currency; \n \n(j) \nTo maintain a robust interest rate regime that fights \ninflation, whilst at the same time ensuring that the \nproductive sectors have access to offshore and other \ndomestic foreign exchange denominated loans; \n \n40 \n \n \n(k) To realign the FCA retention levels in support of \ngenerators of foreign exchange; and \n \n(l) \nTo proffer necessary policy advice to Government \nand the rest of the economy on alternative strategies \nthat deal with our present difficult circumstances in \nrobust, audacious, effective and lasting ways. \n \n 2. FINANCIAL SECTOR DEVELOPMENTS \n \n2.1 As the record will show, my Statement of 26 November \n2008 accepting my reappointment for a second term \nreaffirmed the Reserve Bank’s commitment to \nreturn to central banking core business of \nmaintaining monetary and financial stability. \n \n2.2 \nThis Monetary Policy Statement, therefore, outlines the \nkey aspects of the financial supervision framework the \nReserve Bank will pursue for the next five years. \n \n \n41 \n \nPRUDENTIAL SUPERVISION HIGHLIGHTS OF THE \nPAST FIVE YEARS \n \n2.3 Prior to 2003, an adverse macroeconomic environment, \nweak \nsupervisory \napproaches, \nand \nregulatory \nforbearance gave rise to a number of fundamental flaws \nin the operations of banks including the following: \n• \nShift from core banking business to speculative \ntransactions; \n• \nAbuse of bank holding company structures to evade \nregulation; \n• \nPoor corporate governance, risk management \npractices and insider dealing; \n• \nRapid local and regional expansion with no proper \ninternal controls, and adequate capacity; and \n• \nDisregard of prudential laws and regulations. \n \n2.4 In pursuit of its statutory core mandate of maintaining \nfinancial stability, the Reserve Bank seized the \nopportunity to enhance supervisory processes through a \nnumber of measures, including the issuance of \n \n42 \n \nGuidelines, in order to address operational and structural \ndeficiencies then plaguing the financial sector. \n \n2.5 The Table below provides a catalogue of the main \nguidelines issued by the BLSS since 2003. \n \nMAIN GUIDELINES TO THE BANKING SECTOR \n \nName of Guideline \nDate of Issue \n1. Corporate Governance Guideline No. 01-2004/BSD 30 Sept. 2004 \n2. Minimum Internal Audit Standards in Financial \nInstitutions Guideline No. 02-2004/BSD \n30 Sept. 2004 \n3. Framework on the Relationship Between Bank \nSupervisors and Banks’ External Auditors \n30 Sept. 2004 \n4. Accreditation of Credit Rating Agencies, Guideline \nNo. 04-2006/BSD \n30 Sept. 2004 \n5. Risk Management Guideline No. 01-2006/BSD \n31 July 2006 \n6. Risk Based Supervision Policy Framework \nGuideline No. 02-2006/BSD \n31 July 2006 \n7. Special Purpose Vehicle, Securitisation & \nStructured Finance Guideline No.01-2007/BSD \n1 Oct. 2007 \n8. Consolidated Supervision Policy Framework \nGuideline No. 02-2007/BSD \n1 Oct. 2007 \n9. Circular to Banking Institutions No.012007/BSD: \n“Disclosure of On-Site Examination & External \nCredit Ratings” \n23 Oct. 2007 \n \n10. Circular to Banking Institutions No.01-2008/ BSD: \n“Excessive Bank Charges” \n4 Oct. 2008 \n \n \n43 \n \n2.6 The guidelines also provided for the separation of bank \nowners and management in an effort to curtail abusive \npractices by owner-managers. \n \n2.7 Other regulatory measures instituted include: \n(i) \nImplementation of the Banking Supervision Application \n(BSA) in 2004, which has enhanced offsite surveillance. \n(ii) \nUse of Audit Command Language (ACL) software to \nevaluate the accuracy and integrity of financial data; \n(iii) \nDeveloped and implemented the Financial Inclusion \nFramework; \n(iv) \nDeveloped the National Microfinance Policy in \nconjunction \nwith \nthe \nNational \nTaskforce \non \nMicrofinance; \n(v) \nIntroduced requirement for annual certification of \nbanking institutions’ IT systems by external auditors; and \n(vi) \nPrescribed additional disclosure requirements for \nbanking institutions and asset management companies. \n \n2.8 Notwithstanding the notable achievements, the Reserve \nBank shall continuously improve its supervisory \n \n44 \n \nprocesses in line with financial sector developments and \ninternational best practice. \n \nArchitecture of the Banking Sector \n \n2.9 As at 25 January, 2009, there were 28 banking \ninstitutions under the supervision of the Reserve Bank, \ncomprising the following: \n \nType of Institution \nNumber \nCommercial banks \n15 \nMerchant banks \n6 \nFinance houses \n0 \nDiscount houses \n3 \nBuilding societies \n4 \nTotal \n28 \n \n2.10 In addition there were 17 licensed Asset Management \nCompanies, and 75 operating microfinance institutions, \ndown from 180 in 2007. \n \nCurrent Challenges in the Financial Sector \n \nRampant Financial Indiscipline… \n \n2.11 The Reserve Bank has noted and advised the public of \nthe despicable laxity, recklessness and contagious greed \n \n45 \n \nthat engulfed the banking sector over the past few \nmonths to the detriment of the economy. \n \n2.12 A number of banking institutions were involved in \nunethical activities and/or allowed themselves to be used \nas conduits for illicit transactions. \n \n2.13 The malpractices were epitomized by the issuance of \nunfunded and fraudulently drawn bank cheques and \ngeneral disdain for the “know your customer” (KYC) \nrequirements. \n \n2.14 The imprudent activities in the banking sector \nexacerbated the cash shortages and fuelled the ravaging \nfires of inflation. Fraudulent activities are detrimental to \nfinancial stability which has to be anchored on the virtue \nof confidence. \n \n \n46 \n \nViability Challenges in the Asset Management \nIndustry … \n \n2.15 An analysis of Asset Management Companies (AMCs) \nrevealed that many players in the sector are not \nconducting meaningful asset management business. \n \n2.16 The sector remains “overgrazed” despite the closure of \n14 failed AMCs in the period 2004 to 2006. Currently, \nonly five out of 17 AMCs account for more than 80% of \ntotal funds under management. \n \n2.17 Some asset management companies continue to operate \nwith inadequate capital and have resorted to illegal \nactivities to meet their operating costs. \n \n2.18 As Monetary Authorities, we have on innumerable \noccasions warned asset management companies to \nconcentrate on their core business, yet some of them \nhave habitually engaged in unethical business practices \nincluding illegal foreign currency trades. \n \n \n47 \n \n2.19 Further, some AMCs, especially those in group structures \nincorporating Banking Institutions, Pension Funds and/or \nInsurance Companies, continue to be used as willing \nconduits to facilitate diversion from core business. \n \n2.20 As such, the moratorium on registration of AMCs issued \nby the Reserve Bank in 2004 remains in force as there is \nlimited scope for viable business opportunities in the \nsector. \n \n2.21 The Reserve Bank’s advice for consolidations and \nmergers in the asset management industry has long gone \nunheeded. \n \n2.22 With effect from 1 March, 2009 all AMCs that are \nunder capitalized; that is, whose capital base is less than \nUSD2.5 million, shall be closed, with no option for \ncuratorship. \n \n2.23 Further, all AMCs engaging in illegal activities in \nviolation of the Asset Management Act [Chapter 24:26] \n \n48 \n \nand other applicable legislation shall be closed with \nimmediate effect, again with no option for curatorship. \n \nInadequate Regulatory Framework for Non-bank \nFinancial Institutions … \n \n2.24 The absence of a well defined and comprehensive \nregulatory prudential supervision framework for the \nZimbabwe Stock Exchange, Stock Brokers, Insurance \nCompanies and Pension Funds has significantly \ncompromised financial stability. \n \n2.25 Inadequate oversight of the capital market, pension and \ninsurance sectors has provided a hotbed for illegal \ntransactions, indiscipline and reckless disregard of rules \nand regulations. \n \n2.26 Stock-broking firms have continued to mushroom all \nover the market some of which are under resourced, and \nare manned by unaccountable one man bands. \n \n \n49 \n \n2.27 There are no prescribed educational credentials for \nregistration of stockbrokers. \n \n2.28 Some unscrupulous players in the insurance and \nsecurities sectors took advantage of the absence of \noversight to engage in illegal transactions, indiscipline \nand reckless disregard of the applicable rules and \nregulations. \n \n2.29 Investigations have revealed that most pension funds and \ninsurance companies are not complying with the \nminimum prescribed asset requirements of 35% and \n30%, respectively. \n \n2.30 As Monetary Authorities, we are cognizant of the fact \nthat financial stability is dependent on the collective \nstability of financial markets, financial institutions and \nfinancial infrastructure. \n \n2.31 We, therefore, call upon the Insurance and Pensions \nCommission (IPEC); and the Securities Commission \n(SEC) to put in place comprehensive prudential \n \n50 \n \nsupervision frameworks for the effective supervision of \ninsurance companies, pension funds, and capital markets \nbased on international best practice. \n \n2.32 The insurance industry in particular, should be primed \nfor adoption of the provisions of Solvency II, which \nframework has three pillars namely (a) measurement of \nassets, liabilities and capital; (b) supervisory review \nprocess; and (c) disclosure requirements. \n \n2.33 Similarly, SEC should subject stockbrokers, ZSE, \nfinancial advisors and other capital market players to \nprudential \nsupervision \nin \naccordance \nwith \nthe \nInternational Organization of Securities Commissions \n(IOSCO) core principles for effective supervision. \n \n2.34 As with Basel II for the banking industry, Solvency II \naims at building a robust regulatory framework for the \ninsurance sector. \n \n2.35 The Reserve Bank stands ready to partner with, and \nprovide technical guidance to, IPEC and SEC in the \ndevelopment of the prudential requirements. \n \n51 \n \nMEASURES TO ENHANCE FINANCIAL STABILITY \n \n2.36 The unfolding global financial crisis, considered by \nmany as the worst since the Great Depression of the \n1930s, has once again graphically demonstrated that \nfinancial stability is a prerequisite for the economic well-\nbeing of Nations. \n \n2.37 The gravity of such crises is usually aggravated by weak \nregulation and poor risk management practices. \n \n2.38 As Monetary Authorities, therefore, we will continuously \nimprove our supervisory processes in line with financial \nsector developments and international best practice. \n \n2.39 Going forward, the Reserve Bank will implement a \nnumber of measures aimed at restoring confidence in the \nfinancial system; strengthen risk management systems in \nthe banking sector; enhance liquidity management and \nregulation; strengthen the capitalization of banking \ninstitutions; and adoption of the Basel II framework. \n \n \n52 \n \nRisk-Based Supervision \n \n2.40 The Reserve Bank’s supervisory framework will \ncontinue to be underpinned by Risk-Based supervision \nmethodologies, which place emphasis on the accurate \ndetermination of the risk profiles of banking institutions \nand adequacy of risk management systems. \n \n2.41 The Risk-Based Supervision framework also provides for \non-going interaction among supervisors, banks and \nexternal auditors through prudential meetings. \n \n2.42 Risk-Based Supervision provides a solid foundation for \nimplementation of the Basel II framework. \n \n2.43 In \norder \nto \npromote \nenhanced \ntransparency, \naccountability and effective market discipline, banking \ninstitutions are required to make disclosures of their \nCAMELS and Risk Assessment System ratings in \ntheir half-year and year-end financial statements. \n \n \n53 \n \nMinimum Capital Requirements … \n \n2.44 Adequately capitalized banking institutions play a pivotal \nrole in the economic turnaround process through efficient \nfinancial intermediation. \n \n2.45 As Monetary Authorities, we therefore, call upon \nbanking institutions to continuously monitor their foreign \ncurrency denominated capital levels and to provide \nadequate economic capital in line with their risk profiles. \n \n2.46 On 4 July 2008 the Reserve Bank prescribed minimum \nregulatory capital requirements effective 31 August \n2008, as listed below: \n \n Type of Institution \nMinimum Capital \nRequirement \nCommercial Banks \nUSD 12.5 million \nMerchant Banks \nUSD 10 million \nBuilding Societies \nUSD 10 million \nFinance Houses \nUSD 7.5 million \nDiscount Houses \nUSD 7.5 million \nAsset Management \nCompanies \nUSD 2.5 million \n \n \n54 \n \n2.47 In order to ensure compliance with the foreign currency \ndenominated minimum capital requirements on an \nongoing basis, banking institutions are encouraged to \npursue capital preservation strategies that augment the \ntraditional sources of capital. \n \n2.48 As Monetary Authorities, we reiterate that banking \ninstitutions without capacity to maintain adequate capital \nlevels commensurate with their risk profiles on an on-\ngoing basis shall be closed or induced into mergers with \nno option for curatorship. \n \nEnhancement of Corporate Governance, Risk \nManagement and Internal Control Systems … \n \n2.49 My inaugural Monetary Policy Statement of 18 \nDecember 2003 emphasized the need for sound risk \nmanagement frameworks. \n \n2.50 Recent developments in the financial sector have shown \nthat a few bad apples ignored the Reserve Bank’s \nguidance on prudent risk management. \n \n55 \n \n \n2.51 Such institutions are reminded that the Reserve Bank has \nprovided adequate guidance on risk management \nexpectations. \n \n2.52 As such, every banking institution is expected to \nreinforce its risk management systems and internal \ncontrols to ensure that they are adequate for \nidentification, measurement, monitoring and control. \nThis should apply for all risks to which the institution is \nexposed. \n \n2.53 Once again, every banking institution is called upon to \nensure on-gong compliance with the spirit and letter of \nKYC regulations and guidelines issued by the Reserve \nBank. \n \n2.54 Between 1 February 2009 and 30 June, 2009, directors of \nbanking institutions should receive induction training \ncovering the following aspects: \n \n(i) functions of the board and board committees; \n(ii) roles and responsibilities of directors; \n \n56 \n \n(iii) the roles and responsibilities of management; \n(iv) understanding the institution on whose board they sit; \n(v) risk management and corporate governance; \n(vi) laws and regulations governing banking institutions; and \n(vii) Board and director evaluation framework. \n \n2.55 In addition, banking institutions are encouraged to have a \nframework for ongoing board and director training. \n \n2.56 Any \ndirector \ndetermined \nto \nbe \ninsufficiently \nknowledgeable of the affairs and condition of the \nbanking institution under their oversight; or deemed \nnegligent in the discharge of their duties and \nresponsibilities; shall be removed from office and \ndeemed unfit and improper to hold the same position in \nany banking institution in Zimbabwe. \n \n57 \n \nBasel II Implementation … \n \n2.57 As Monetary Authorities, we wish to advise the banking \nsector that all banking institutions are required to fully \nadopt standardized approaches for allocation of capital \nfor credit risk, market risk, and operational risk with \neffect from 6 February 2009. \n \n2.58 Since 2006, the Reserve Bank embarked on a gradual \nimplementation approach that allows for smooth \ntransition to the new system. \n \n2.59 Banking institutions operating in Zimbabwe are already \nrequired to allocate capital for market and operational \nrisk using the standardized approaches. \n \n2.60 Guideline No:1-2009/BSD: “Technical Guidance on \nBasel II Implementation in Zimbabwe,” will be issued in \ndue course to provide a road-map and expert guidance on \nfull Basel II implementation in the country. \n \n \n58 \n \n2.61 All banks will be eligible to apply for the adoption of \nadvanced approaches with effect from January 2010, \nsubject to satisfaction of model validation and approval \ncriteria prescribed in the said guideline. \n \nEffective Supervision of Banking Groups … \n \n2.62 A number of banking institutions have used unregulated \nentities in their group structures as conduits for \nindulgence in regulatory arbitrage, that is, by engaging \nin non-permissible activities. \n \n2.63 It is imperative that all bank holding companies adopt \nthe same corporate governance standards as applicable \nat banking institutions. \n \n2.64 In addition, bank holding companies receiving funding \nfrom banks should not be used as conduits for the \nconduct of activities that banks would otherwise not do at \nlaw. \n \n \n59 \n \n2.65 The \nReserve \nBank \nhas \nsigned \nmemoranda \nof \nunderstanding \nwith \nother \nregional \nsupervisory \nauthorities to facilitate information sharing and on-site \nsupervision of all regional subsidiaries of banks under \nthe supervisory jurisdiction of the Reserve Bank. \n \nClose Monitoring Of Liquidity Risk… \n \n2.66 Recent investigations by the Reserve Bank indicated that \nbanking \ninstitutions \nwhich \nexperienced \nliquidity \nmanagement challenges had diverted the funds of \ndepositors into non-core business such as stocks, parallel \nmarket activities and purchase of fixed assets. \n \n2.67 Going forward, banks need to demonstrate to the \nReserve Bank that their liquidity contingency plans as \nwell as their business continuity arrangements are \nadequate on an ongoing basis. \n \n2.68 In addition, the Reserve Bank shall regularly undertake \ncomprehensive \nliquidity \nstress \ntests \nfocused \non \ninstitutions’ asset and liability structures and liquidity \nmanagement strategies. \n \n60 \n \n \n2.69 Boards of banking institutions should put in place \nmechanisms that ensure appropriate board and \nsenior management oversight over liquidity risk. \n \nFinancial Innovation … \n \n2.70 The current cash crisis presents an opportunity for \nfinancial institutions to promote usage of alternative \nmeans of payment such as local and foreign currency \ndenominated smart cards, and cell-phone banking. \n \n2.71 Our banking institutions are encouraged to enter into \nstrategic alliances with local, regional and international \npartners to pursue these initiatives. \n \n2.72 As Monetary Authorities, we stand ready to facilitate \nsuch initiatives. \n \n \n61 \n \nNATIONAL PAYMENT SYSTEMS \n \n2.73 The maintenance of an efficient and robust national \npayments system remains one of our major objectives as \na Central Bank. \n \n2.74 It is through this role that as monetary authorities we are \nable to maintain confidence and stability of the financial \nsystem. \n \n2.75 In this regard, the Central Bank will continue to support \nall initiatives that promote the achievement of this \nobjective. \n \n2.76 Pursuant to the challenges that were recently experienced \nin the financial services sector, the following measures \nwill be taken: \n \n \n \n62 \n \nClearing and Settlement \n \n2.77 As regulatory authorities, enforcement of strict controls \nin the market to curb wayward behaviour through abuse \nof the cheque instrument remains one of our priorities. \n \n2.78 The banking community is implored to continuously \napply effective risk management mechanisms and abide \nby Central Bank regulations to avert systemic risk which \nhas the potential of destabilizing the entire financial \nsector. \n \n2.79 Having acknowledged risks associated with the cheque \npayment stream, the Central Bank, in consultation with \nthe banking community, will vigorously pursue the \nestablishment of an electronic Clearing House (ECH), \nwhich will no doubt go a long way in managing risk. \n \nReal Time Gross Settlement System (RTGS) \n \n2.80 Following the suspension and subsequent reinstatement \nof the RTGS system, the Central Bank remains \n \n63 \n \ncommitted to ensuring that the transacting public is not \ninconvenienced when effecting their genuine payments. \n \n2.81 The RTGS system, by its very nature, is intended for \nhigh-value high-risk and time critical payments. \n \n2.82 In order to maximize this benefit, the Central Bank, in \ncollaboration with the banking industry, will continue to \nrestrict low value payments from the system. Such \npayments should be channelled through other non-cash \nmethods which are retail in nature. \n \nNon Cash Methods of Payment \n \n2.83 The Central Bank acknowledges that macroeconomic \nchallenges have negatively impacted on the effective \nutilization of alternative non-cash retail payment systems \nin the country. Efforts to promote non cash means of \npayment will be stepped up through engagement of \nrelevant stakeholders in both the IT and Financial Sectors \nof the economy. \n \n \n64 \n \n2.84 It is our strong belief that there are innovative minds out \nthere in the country that are capable of bringing on board \ninitiatives to enhance our retail payment streams which \nhave largely been impaired by the current inflationary \nenvironment. \n \nSECTORAL OVERVIEW \n \n3 \nGold \n \n \n3.1 Gold deliveries for the period January to 31 December, \n2008 slumped by more than 50 percent to 3 072 kgs \ncompared to 6 798 kgs over the same period in 2007. \n \nGold Deliveries\n0\n100\n200\n300\n400\n500\n600\n700\n800\n900\nJan\nFeb\nMar April May June July\nAug\nSept\nOct\nNov\nDec\nKgs\n2007\n2008\n \n \n65 \n \n \n \n3.2 Gold production has largely been constrained by: \n \ni. \nRising production costs; \nii. \nFrequent electricity outages; and \niii. \n Shortages of critical inputs such as cyanide, \nexplosives, spare parts and mining equipment \nManufacturing \n \n3.3 The manufacturing sector continues to face a number of \nchallenges, which include rising production costs, \nforeign \ncurrency \nconstraints, \nelectricity \nsupply \ninterruptions, fuel shortages and brain drain. \n \n3.4 Production in the manufacturing sector continues to \ndecline, with industry average capacity utilisation \ncurrently below 20%. \n \n3.5 The July 2008 Confederation of Zimbabwe Industries \n(CZI) study estimated manufacturing capacity utilisation \nat 18.9% in 2007. \n \n66 \n \n \n3.6 The following factors will underpin performance of the \nmanufacturing sector in 2009:- \n \ni. \nIncreased ‘export horizon’ for manufacturers who can \nearn foreign currency from local market, under the \nspecial licenced foreign exchange outlets framework; \n \nii. \nExpected growth in the agricultural sector which will \nboost production in agro-based industries, given the \ntraditional strong linkages between these two sectors; and \n \niii. \nExpected stabilisation of inflation and the general costs \nof inputs, under the expanded foreign exchange trading \nsystem. \n \nTourism and Distribution \n \n3.7 The tourism and distribution sub-sector is estimated to \nhave declined by 11% in 2008, compared to a decline of \n13% in 2007. \n \n \n67 \n \n3.8 International tourist arrivals declined by 58% during the \nfirst half of 2008, compared to the first half of 2007. \n \n3.9 Tourist arrivals fell from 1 262 898 in the first half of \n2007, to 531 357 during the same period in 2008. \n \n3.10 The Table below shows statistics on tourist arrivals. \n \nTourist Arrivals \nTourist Arrivals \n1st Half 2007 \n1st Half 2008 \n% \nChange \nAfrica \n1 132 575 \n410 968 \n-64 \nOverseas \n130 323 \n120 389 \n-8 \nTotal \n1 262 898 \n531 357 \n-58 \nSource: Zimbabwe Tourism Authority (ZTA) – Tourism \nStatistics 1st Half Report 2008 \n \n3.11 As a Nation, there is, therefore an urgent need for us to \nvigorously build an internal cohesive atmosphere that \nsignificantly \ncontributes \nto \nthe \nmuch \nneeded \nreconstruction of the country’s damaged international \nimage. \n \n68 \n \n \nINFLATION OUTLOOK \n \n3.12 The year 2009 is poised to be a critical turning point for \nZimbabwe’s inflation, with rapid disinflation expected \nthroughout the year. \n \n3.13 The introduction of the special foreign exchange shops is \nalready benefiting the economy through greater products \navailability and significant price decreases. \n \nSample Basket Price Decreases: October 2008-26 January, \n2009 \n \nITEM \nPRICE IN \nOCTOBER, \n2008 \nUS$ \nPRICE AS \nAT 26 \nJANUARY \n2009 \nUS$ \nPERCENTAGE \nDECREASE \n1. \n10kgs Roller Meal \n12.00 \n6.00 \n-50% \n2. \n2kg Sugar \n5.00 \n3.00 \n-40% \n3. \n2 kg Salt \n1.50 \n0.50 \n-67% \n4. \n750 ml Cooking Oil \n3.00 \n1.50 \n-50% \n5. \n2 litres Mazoe \n4.50 \n3.00 \n-33% \n6. \n250 g Matemba \n2.50 \n1.75 \n-30% \n7. \n1 litre Petrol (Global \neffects) \n1.25 \n0.60 \n-52% \n8. \n1 litre Diesel (Global \neffects) \n1.20 \n0.60 \n-50% \n9. \n6 – pack soft drinks \ncans \n10.00 \n6.00 \n-40% \n10. \n125 g cotton wool \n2.50 \n1.25 \n-50% \n11. \nTotals \n43.45 \n24.2 \n44.30% \n \n \n \n69 \n \n3.14 Prices of goods and services are expected to continue \ntheir rapid decline trend over the remainder of the year \nwhile availability is expected to improve against the \nfollowing concrete factors: \n \n(a) The adoption of a hard fiscal budget constraint which \nentails that the Government sector will only spend \navailable \nresources, \nwithout \nany \nrecourse \nto \ninflationary monetary finance which in any case the \nReserve Bank of Zimbabwe is unable to print or avail \noutside what the economy can generate by way of \nforeign currency. \n \n(b) The Reserve Bank has streamlined its operations, \nfocusing more on inflation control and stability in the \nbanking sector against the background of renewed \ncommitments that all line Ministries will now fully \ndischarge their core functions. \n \n(c) To this end, the Acting Minister of Finance the Hon. \nSenator P. A Chinamasa made the following \n \n70 \n \ncommitments and declaration in his Budget proposals \nparagraphs 145 to 148 page 43 which I quote: \n \n• “Essential for shoring up the value of the Zimbabwe \ndollar will be the implementation of a combination of \nstrict and painful fiscal and monetary measures that \nrelate the Zimbabwe dollar monetary base to \ndevelopments in the real sector, and the avoidance of \nrecourse to money printing beyond the economy’s \nproduction of goods and services. \n• The Minister went further to state that to achieve the \nabove required “discipline and commitment to our \nexpenditure and revenue targets without permitting \nexpenditures outside the budget.” \n \n(d) The liberalization of the Exchange Control Policy \nFramework, as well as the freeing up of the exchange \nrate to be determined in the market will unleash \nphenomenal efficiency gains that will help reactivate \ngreater capacity utilization in the economy. This should \nsignificantly deflate prices; \n \n \n71 \n \n(e) The market decline in global fuel prices is expected to \nsignificantly reduce producers’ costs which would hive \noff inflationary pressures; \n \n(f) The expected positive turn in capacity utilization will \nin itself act as a favourable factor in levelling off the \npessimism that had paralyzed the economy. Optimism \ngenerates a self-reinforcing cycle of disinflation \nthrough change in economic behaviour particularly in \nthe price formation systems; and \n \n(g) The country’s general food supply situation is \nexpected to improve against the background of the \ngood rains notwithstanding some constraints farmers \nare facing in accessing some of the critical inputs. A \nrelatively better food supply situation is an important \ningredient in the disinflation process. \n \n(h) As part of our contribution towards curtailing money-\nsupply growth following the migration of the National \nBudget to foreign currency, all sectors of the economy \nare hereby advised that the Bank is in its final stages of \n \n72 \n \nwinding down residual Quasi-Fiscal Operations of yester \nyear. \n \n(i) We expect the administrative processes to be completed \nby the end of this quarter. To this end, it is instructive to \nquote from the Minister’s Budget Statement addressing \nthe same issue paragraphs 149 to 155 where he said; \n \n“Quasi-Fiscal Operations. \n“ The Government of Zimbabwe has been constrained \nfrom funding some of the projects during the last nine \nyears or so due to the sanctions imposed on the nation. \n \n“The Reserve Bank has in the mean time financed \nthose quasi-fiscal operations in the areas of \nagriculture, dam construction, education and health \namong other activities. \n \n“As at December 2008, the Reserve Bank was able to \nremove all these expenditures from the Bank’s books \nthrough a Sinking Fund which had been set up to \ncover these expenditures. \n \n73 \n \n \n“The Bank’s balance sheet is now free of these quasi \nfiscal expenditures and the RBZ will now concentrate \non its major mandates of assuring the stability of \nprices and the financial sector.” end of Quote. \n \n3.15 As Monetary Authorities, we call upon all sectors of the \neconomy to set aside the burdensome yoke of perpetual \ndespair and take advantage of these favourable \ndevelopments. \n \n3.16 Through combined efforts, we will be able to \nsuccessfully break the backbone of the inflation \ndragon in the interest of achieving macroeconomic \nstability. \n \n3.17 Still on the inflation front, it is strategically important \nthat the Central Statistical Office (CSO) be adequately \ncapacitated so as to enable them to carry out substantive \nsurveys of the latest positive developments on inflation. \nWe are pleased to note that through the 2009 Budget, \nGovernment has directed the CSO, effective this \n \n74 \n \nmonth, to begin tracking developments in price \nindices in foreign currency terms. \n \n3.18 This essential move, alongside the timely availability of \naccurate data is critical in guiding business decisions, as \nwell as shaping expectations. \n \n4. \nMONETARY DEVELOPMENTS \n \nMonetary Growth \n \n4.1 Money supply growth continued on an upward trend, in \npart as a reflection of the prevailing macroeconomic \nimbalances under which the Government Sector has \nlargely relied on domestic bank finance. \n \n4.2 Broad money supply (M3) growth increased sharply \nfrom 81 143.1% in January to 658 000 000 000% in \nDecember, 2008. \n \n4.3 The growth has also largely been underpinned by money \ncreation related to speculative activities on the parallel \nforeign exchange and stock market. \n \n75 \n \nTHE ZIMBABWE STOCK EXCHANGE \n \n4.4 The Zimbabwe Stock Exchange has been one of the \nmajor sources of money creation, driving money supply \nto unprecedented levels in the economy. \n \n4.5 Stock market activities were generally on an upward \ntrend during 2008, mainly due to low and negative real \nreturns on the money market, lack of alternative \ninvestment \ndestinations \nand \nadverse \ninflation \nexpectations. \n \n4.6 The strong third quarter performance of the bourse \nspilled into the final quarter of 2008 before slowing \ndown after the introduction of the following remedial \nMonetary Policy measures by the Central Bank on \nThursday 20th November 2008: \n \na) \nCancellation of provision for unsecured accommodation \nto all banks; \n \nb) \nSuspension from the clearing house for any bank that \nfailed to fund its clearing obligations; \n \n76 \n \nc) \nBlacklisting of companies and stock-broking firms that \nissued fraudulent cheques; and \nd) \nCancellation of trading licence for any bank that issued \nfraudulent bank cheques. \n \n4.7 The above measures were instituted to curb fraudulent \nspeculative behaviour that had gripped the stock market. \n \n4.8 The benchmark industrial index grew from 4 294 points \nrecorded on the 1st July to peak at 44 305 quadrillion \npoints on the 17th November 2008. The graph below \nshows weekly industrial index developments from 4 July \nto 31 December 2008. \n \n77 \n \nThe Industrial Index \n0\n5,000,000\n10,000,000\n15,000,000\n20,000,000\n25,000,000\n30,000,000\n35,000,000\n40,000,000\n45,000,000\n04-Jul-08\n13-Jul-08\n22-Jul-08\n31-Jul-08\n09-Aug-08\n18-Aug-08\n27-Aug-08\n05-Sep-08\n14-Sep-08\n23-Sep-08\n02-Oct-08\n11-Oct-08\n20-Oct-08\n29-Oct-08\n07-Nov-08\n16-Nov-08\n25-Nov-08\n04-Dec-08\n13-Dec-08\n22-Dec-08\n31-Dec-08\nTrillion\n \n4.9 The growth in the industrial index was largely driven by \nspeculative activities anchored on parallel market \nexchange rate depreciation. Consequently, the significant \nshare price increases in blue chip counters, especially the \ndually listed companies accentuated the artificial asset \nprice bubble. \n \n4.10 The mining index also experienced astronomical growth, \nfrom 5 722 points in July 2008 to 43 973 quadrillion \n \n78 \n \npoints on 17th November 2008. The graph below shows \nthe trend of the mining index from 4th July 2008 to 28th \nNovember 2008. \n \nThe Mining Index \n0\n5,000,000\n10,000,000\n15,000,000\n20,000,000\n25,000,000\n30,000,000\n35,000,000\n40,000,000\n45,000,000\n50,000,000\n04-Jul-08\n13-Jul-08\n22-Jul-08\n31-Jul-08\n09-Aug-08\n18-Aug-08\n27-Aug-08\n05-Sep-08\n14-Sep-08\n23-Sep-08\n02-Oct-08\n11-Oct-08\n20-Oct-08\n29-Oct-08\n07-Nov-08\n16-Nov-08\n25-Nov-08\n04-Dec-08\n13-Dec-08\n22-Dec-08\n31-Dec-08\nTrillion\n \n4.11 The growth in the mining index was buoyed by the \ninitially high international commodity prices during the \nfirst half of 2008 and the speculative trading on the \nbourse during the first week of November 2008. \n \n \n79 \n \n4.12 The graphs below show the share price movements of \nselected counters that include Old Mutual, AICO, Delta, \nDZHL and Econet depicting the asset price bubble and \nthe deflation of the bubble after the corrective measures \ninstituted by the Central Bank. \n \n OLD MUTUAL: PRICE PER SHARE\n0\n85,000\n170,000\n255,000\n340,000\n425,000\n510,000\n19-Sep-08\n25-Sep-08\n1-Oct-08\n7-Oct-08\n13-Oct-08\n19-Oct-08\n25-Oct-08\n31-Oct-08\n6-Nov-08\n12-Nov-08\n18-Nov-08\n24-Nov-08\n30-Nov-08\n6-Dec-08\n12-Dec-08\n18-Dec-08\n24-Dec-08\n30-Dec-08\nTrillions\n \n \nAsset price \nbubble \n($520 Quad) \n($500 trillion) \n($600 trillion) \n \n80 \n \nAICO AFRICA: PRICE PER SHARE\n0\n5,000\n10,000\n15,000\n20,000\n25,000\n30,000\n19-Sep-08\n25-Sep-08\n1-Oct-08\n7-Oct-08\n13-Oct-08\n19-Oct-08\n25-Oct-08\n31-Oct-08\n6-Nov-08\n12-Nov-08\n18-Nov-08\n24-Nov-08\n30-Nov-08\n6-Dec-08\n12-Dec-08\n18-Dec-08\n24-Dec-08\n30-Dec-08\nTrillions\n \n DELTA: PRICE PER SHARE\n0\n8,000\n16,000\n24,000\n32,000\n40,000\n48,000\n56,000\n19-Sep-08\n25-Sep-08\n1-Oct-08\n7-Oct-08\n13-Oct-08\n19-Oct-08\n25-Oct-08\n31-Oct-08\n6-Nov-08\n12-Nov-08\n18-Nov-08\n24-Nov-08\n30-Nov-08\n6-Dec-08\n12-Dec-08\n18-Dec-08\n24-Dec-08\n30-Dec-08\nTrillions\n \nR\nI\nAsset price \nbubble \n($30 Quad) \n($80 \ntrillion) \n($30 Trillion) \n \n \nAsset price \nbubble \n($800 \ntrillion) \n($40 Trillion) \n($55 Quad) \n \n \n81 \n \n DZHL: PRICE PER SHARE\n0\n5,000\n10,000\n15,000\n20,000\n25,000\n30,000\n35,000\n40,000\n19-Sep-08\n25-Sep-08\n1-Oct-08\n7-Oct-08\n13-Oct-08\n19-Oct-08\n25-Oct-08\n31-Oct-08\n6-Nov-08\n12-Nov-08\n18-Nov-08\n24-Nov-08\n30-Nov-08\n6-Dec-08\n12-Dec-08\n18-Dec-08\n24-Dec-08\n30-Dec-08\nTrillions\n \n \n ECONET: PRICE PER SHARE\n0\n50,000\n100,000\n150,000\n200,000\n250,000\n300,000\n350,000\n400,000\n450,000\n500,000\n550,000\n600,000\n19-Sep-08\n25-Sep-08\n1-Oct-08\n7-Oct-08\n13-Oct-08\n19-Oct-08\n25-Oct-08\n31-Oct-08\n6-Nov-08\n12-Nov-08\n18-Nov-08\n24-Nov-08\n30-Nov-08\n6-Dec-08\n12-Dec-08\n18-Dec-08\n24-Dec-08\n30-Dec-08\nTrillions\n \nAsset price \nbubble \nAsset price \nbubble \n($1 Quad) \n($3 \nQuad) \n($40 Quad) \n($600 Quad)\n($5 \nQuad) \n($2.5 Quad) \n \n82 \n \n4.13 The graphs above show that from 8th November 2008, \nthe stock market experienced an asset price bubble \ndriven by irrational bidding up of prices by speculators \nwho had invaded the equities market. \n \n4.14 The bubble was also inflated by some stockbrokers who \nwere engaging in illicit trading activities which resulted \nin amplified share prices for the blue chip counters. \n \n4.15 The fungibility of the Old Mutual shares resulted in the \nshare price of the counter being used as a proxy for the \nparallel market exchange rate. Consequently, the increase \nin share price due to the asset price bubble translated to a \nsurge in the prices of goods and services in the economy. \n \n4.16 Ideally, stock market indices should reflect the \nunderlying fundamentals of productivity on the ground. \nThe stock market prices should, therefore, start to \nrepresent actual economic fundamentals. \n \n \n \n \n83 \n \n4.17 The stock market however, continued to surge against the \nbackground of increasing under capacity utilization, a \nclear reflection of the dislocation between economic \nactivity and stock market trends. \n \n4.18 Resultantly, the asset price bubble led to the creation of \nfinancial wealth not backed by economic fundamentals \nthereby accelerating money creation in the economy. \n \n4.19 The high growth in money supply resulted in high \ndemand for currency from the general public. This put \npressure on the printing capacity of the Monetary \nAuthorities, which is already constrained by the illegal \nsanctions imposed against the country. \n \nMONEY MARKET POSITION \n \n4.20 Throughout 2008, the money market experienced high \nliquidity levels. \n \n4.21 The huge liquidity injections were mainly due to \ninflation driven Government expenditures, largely related \n \n84 \n \nto the 2008 National Elections, as well as support for \neconomic and social development programs. \n \n4.22 As a result, money market surpluses surged significantly, \nparticularly during the last quarter of the year. \n \nDaily Money Market Positions (ZWR) \n0\n500,000,000,000\n1,000,000,000,000\n1,500,000,000,000\n2,000,000,000,000\n2,500,000,000,000\n3,000,000,000,000\n3,500,000,000,000\nNovember 2008\nZ$ Billions\n \n \nInterest Rates… \n4.23 As a result of the liquid conditions on the money market, \nmoney market interest rates have remained generally \ndepressed. \n \n \n85 \n \n4.24 Deposit rates of the 7-30 day category averaged around \n52% since September 2008, while 60-90 day deposit \nrates remained in the region of 150%. \n \n4.25 The interbank rate was generally insignificant, reflecting \nlack of activity on the interbank market on the back of \nsurplus liquidity conditions. \nSelected Money Market Rates (%) \n0\n200\n400\n600\n800\n1000\n'Jan-08\n'Feb-08\n'Mar-08\n'Apr-08\n'May-08\n'Jun-08\n'Jul-08\n'Aug-08\n'Sep-08\n'Oct-08\n'27-Nov-08\nInterbank Rate \n 365-day TB Rate \n60-90 day Deposit Rate\n7-30 day Deposit Rate\n \n4.26 The Bank’s overnight accommodation rates continued to \nbe reviewed in line with the thrust of its lender of last \nresort purpose. \n \n \n \n \n \n86 \n \nReserve Bank Overnight Accommodation Rates (%) \nMonth \nJan-08 \nFeb-08 \nMar-08 \nApr-08 \nMay-08 \nJul - 8 Oct 08 \n13-Nov-08 \nSecured Rate \n975% \n1 200% \n4 000% \n4 500% \n6 500% \n8 500% \n10 000% \nUnsecured Rate \n1 500% \n1 650% \n4 500% \n5 000% \n7 500% \n9 500% \n40 000% \n \nGovernment Expenditures… \n \n4.27 Government expenditures escalated sharply in the first \nhalf of the 2008 largely driven by National Elections and \nother development programmes. \n \n4.28 Government’s position at the Central Bank, however, \nremained generally in surplus for the larger part of the \nsecond half of 2008, reaching a peak surplus position of \n$241.9 quintillion, as at 18 November 2008. \n \nDaily Balances of Gvt’s Account at the RBZ (Z$’billion) \n0\n5 0 ,0 0 0 ,0 0 0 ,0 0 0\n10 0 ,0 0 0 ,0 0 0 ,0 0 0\n15 0 ,0 0 0 ,0 0 0 ,0 0 0\n2 0 0 ,0 0 0 ,0 0 0 ,0 0 0\n2 5 0 ,0 0 0 ,0 0 0 ,0 0 0\n3 0 0 ,0 0 0 ,0 0 0 ,0 0 0\n0 1 N o v - 1 8 N o v 0 8\n \n \n \n87 \n \nEXPORT PERFORMANCE \n \n4.29 For the period 1 January to 31 December 2008 total \nexport shipments of goods amounted to USD1.376 \nbillion compared to USD1.606 billion during the same \nperiod in 2007. This represents a 14.32% decline in \nexports of goods and services. \n \n4.30 The mining sector contributed 51% followed by tobacco \nwhich contributed 16% as shown in the figure overleaf: \nShipments by Sector (Jan to Dec 08)\n15%\n16%\n2%\n15%\n1%\n51%\nTobacco\nAgric\nMining\nManufacturing\nHunting\nHorticulture\n \n \n88 \n \nAgriculture Sector \n \n4.31 For the period 01 January to 31 December 2008, total \nexports under the Agriculture Sector amounted to \nUS$464,591,047 compared to US$541,085,451 worth of \nexports for the period January to 31 December 2007. \nThis represents a decrease in agriculture exports of \n14.14%. \n \nExport Shipments by Agriculture Sub-sectors \n \n4.32 For administrative purposes, the Agriculture Sector is \nsplit into 3 sub-sectors namely, General Agriculture, \nHorticulture and Tobacco. \n \n4.33 Generally, there has been a decline in export \nperformance in all the 3 Agriculture sub-sectors. \n \n4.34 Lack of inputs and low capacity utilization are some of \nthe reasons for the decline in export performance. \nHowever, with the support that is currently being given \nto the sector, Agriculture exports are set to increase. \n \n89 \n \n4.35 Exports approved under the three Agriculture Sub-\nsectors are indicated in tables 1-3. \n \n \n4.36 For the period 01 January to 31 December 2008, export \nshipments under the general Agriculture sub-sector \namounted to US$209,062,331, a decrease of 4.5% over \n2007 shipments of US$218,866,814. \n General Agriculture Shipments \n \nValue of Forms \nCD1 Approved \n(USD) 2008 \nValue of Forms \nCD1 Approved \n(USD) 2007 \n% Variance \nJanuary \n13,048,447 \n15,794,499 \n-17.4 \nFebruary \n14,589,867 \n16,830,745 \n-13.3 \nMarch \n11,357,248 \n12,919,386 \n-12.1 \nApril \n11,420,492 \n8,192,453 \n39.4 \nMay \n11,912,034 \n13,793,242 \n-13.6 \nJune \n16,748,945 \n19,332,825 \n-13.4 \nJuly \n22,694,506 \n21,638,017 \n4.9 \nAugust \n37,059,744 \n34,660,251 \n6.9 \nSeptember \n20,666,149 \n19,501,495 \n6.0 \nOctober \n28,980,410 \n17,522,112 \n65.4 \nNovember \n14,573,503 \n27,200,733 \n-53.8 \nDecember \n6,010,986 \n11,481,056 \n-47.64 \nTotal \n209,062,331 \n218,866,814 \n-4.5 \n \n90 \n \n \n4.37 For the period 1 January 2008 to 31 December 2008 total \nshipments under the horticulture sub-sector amounted to, \nUS$24,646,949 compared to US$27,703,307 in 2007, \nrepresenting a decline of 11,0%. \n \n Horticulture Export Shipments \n \nValue of Forms \nCD1 Approved \n(USD) 2008 \nValue of Forms \nCD1 Approved \n(USD) 2007 \n% Variance \nJanuary \n1,819,960 \n2,691,173 \n-32.4 \nFebruary \n2,277,679 \n2,954,492 \n-22.9 \nMarch \n2,035,747 \n2,821,260 \n-27.8 \nApril \n2,520,091 \n2,782,585 \n-9.4 \nMay \n2,386,962 \n3,099,007 \n-23.0 \nJune \n2,032,163 \n2,424,761 \n-16.2 \nJuly \n1,680,213 \n1,763,504 \n-4.7 \nAugust \n1,705,075 \n1,655,899 \n3.0 \nSeptember \n4,248,366 \n2,056,229 \n106.6 \nOctober \n1,669,265 \n1,552,105 \n7.5 \nNovember \n1,113,279 \n2,316,743 \n-60.4 \nDecember \n1,158,159 \n1,585,549 \n27,0 \nTotal \n24,646,949 \n27,703,307 \n-11.0 \n \n \n \n91 \n \n \nTobacco Export Shipments \n \nValue of Forms \nCD1 Approved \n(USD) 2008 \nValue of Forms \nCD1 Approved \n(USD) 2007 \n% Variance \nJanuary \n31,323,192 \n72,469,956 \n-56.8 \nFebruary \n45,930,175 \n17,239,070 \n166.4 \nMarch \n18,959,966 \n12,222,523 \n55.1 \nApril \n15,087,769 \n6,988,803 \n115.9 \nMay \n14,443,850 \n9,916,081 \n45.7 \nJune \n5,908,466 \n6,136,726 \n-3.7 \nJuly \n6,537,413 \n7,667,814 \n-14.7 \nAugust \n10,054,987 \n15,320,131 \n-34.4 \nSeptember \n7,885,990 \n21,835,235 \n-63.9 \nOctober \n20,088,863 \n25,962,190 \n-22.6 \nNovember \n27,964,631 \n51,559,646 \n-46.5 \nDecember \n25,593,687 \n33,811,871 \n-24.31 \nTotal \n203,790,423 \n247,318,174 \n-24,3 \n \n4.38 Tobacco exports amounting to US$203,790,423 were \nprocessed for the period 01 January to 31 December \n2008. This represents a 24,3% decrease over 2007 \nexports of US$247,318,174 for the period 01 January to \n31 December. \n \n \n92 \n \n4.39 As at the end of the tobacco selling season, 48.7 million \nkilograms of tobacco worth US$156.6 million had been \nsold representing a 32% decrease in the kgs sold and a \n6% decrease in the value realized when compared to \n2007. \n \n4.40 The volume of tobacco sold in 2008 fell short of the \nestimated 75 million kgs, as it is believed some growers \nare still holding on to the crop in protest against prices \n \nManufacturing Sector \n \n4.41 Total shipments for the Manufacturing sector from 01 \nJanuary \nto \n31 \nDecember \n2008 \namounted \nto \nUS$220,361,232 compared to US$250,463,244 for the \nsame period in 2007, reflecting a 12,02% decrease. \n \n \n \n \n \n93 \n \nTotal Shipments for the Manufacturing Sector \nMonth \nValue of Forms \nCD1Approved \n(USD) 2008 \nValue of Forms \nCD1 Approved \n(USD) 2007 \n%Change\nJanuary \n13,119,598 \n17,443,436 \n(24.79) \nFebruary \n15,283,732 \n18,200,951 \n(16.03) \nMarch \n14,170,557 \n21,575,273 \n(34.32) \nApril \n17,942,822 \n17,281,713 \n3.83 \nMay \n32,660,990 \n40,116,557 \n(18.58) \nJune \n19,859,492 \n30,265,125 \n(34.38) \nJuly \n17,736,518 \n21,291,129 \n(16.70) \nAugust \n21,183,675 \n24,513,395 \n(13.58) \nSeptember \n15,794,087 \n19,091,384 \n(17.27) \nOctober \n20,069,613 \n17,372,324 \n15.53 \nNovember \n12,278,160 \n26,167,713 \n(62.64) \nDecember \n10,191,964 \n13,405,380 \n(24.0) \nTOTAL \n210,291,208 \n266,724,380 \n(21,2.) \n \n \n4.42 Shipments in the Manufacturing sector have decreased \nover the period as a result of the fall in the production \ncapacity of most companies due to severe shortages of \nforeign exchange to import critical raw materials and \nspares for machinery, high local production costs, power \noutages and high costs of borrowing. On average, \n \n94 \n \ncompanies are losing six days per month as a result of \npower outages. \n \nMining Sector \n \n4.43 Mineral shipments for the period 1 January to 31 \nDecember 2008 amounted to US$676,017,150 compared \nto US$801,862,624 realised during the same period in \n2007. \n \n4.44 This substantial decrease of 15.69% in shipments can be \nattributed mainly to the Global Credit Crunch of \nSeptember 2008, which has resulted in the drastic price \nfall of minerals on the international markets. \n \n4.45 Generally, mineral prices internationally are on the \ndownward trend. \n \n4.46 The negative effect of the ever increasing operational \ncosts, lack of foreign currency for spares and fuel and \npower outages also played a role to this plunge in \nmineral shipments. \n \n \n95 \n \nMineral Shipments for 2008 \n \nMonth \nUS$ Value of \nForms CD1 \nApproved in \n2008 \nUS$ Value of \nForms CD1 \nApproved in \n2007 \nVariance %\nJanuary \n62,737,393 \n63,590,867 \n-1.34 \nFebruary \n57,215,454 \n56,898,369 \n0.56 \nMarch \n64,673,492 \n97,138,491 \n-33.42 \nApril \n69,919,419 \n87,537,598 \n-20.13 \nMay \n81,206,212 \n86,061,014 \n-5.64 \nJune \n70,791,137 \n81,940,250 \n-13.61 \nJuly \n47,822,675 \n61,708,742 \n-22.50 \nAugust \n57,152,188 \n50,029,678 \n14.24 \nSeptember \n62,858,436 \n44,653,245 \n40.77 \nOctober \n61,163,584 \n54,377,081 \n12.48 \nNovember \n29,440,807 \n89,994,081 \n-68.85 \nDecember \n19,707,499 \n64,682,805 \n-69.53 \nTOTAL \n684,688,296 \n838,612,221 \n-18.35 \n \nTourism Sector \n \n4.47 The tourism industry, like any other industry, has not \nbeen spared by the economic challenges facing the \ncountry and this, coupled by the negative publicity the \ncountry \ncontinues \nto \nreceive, \nhas \naffected \nthe \n \n96 \n \nperformance of the whole industry as noted in the \ncontinued downward trend in tourism receipts. \n \n4.48 For the period 1 January 2008 to 31 December 2008, \ntotal receipts stood at USD 29,11 million representing a \nstaggering 55% decline from the previous year. \n \nNon Consumptive Sector (Accommodation and \nServices) \n \n4.49 For the period under review, non consumptive receipts \namounted to USD 17,7 million, a 56% decline compared \nto USD 40,3 million received during for the same period \nin 2007 as highlighted below. Receipts are however \nanticipated to increase slightly as we enter the festive \nseason. \n \n97 \n \n \n Non Consumptive Receipts \n \n2008\n2007 \nMonths \nUSD Amount \nUSD Amount \n% Variance \nJanuary \n1,870,846.03 \n \n3,870,345.46\n(52)\nFebruary \n \n1,585,687.03 \n \n4,037,121.66\n(61)\nMarch \n 1,427,483.66 \n \n3,906,311.72\n(63)\nApril \n 1,080,716.66 \n 2,825,103.15 \n(62)\n \nMay \n 1,879,005.82 \n 3,336,679.00 \n(43)\n \nJune \n 1,414,567.38 \n 2,707,143.26 \n(48)\nJuly \n 1,827,636.48 \n 3,706,631.02 \n(51)\nAugust \n \n2,654,254.85 \n 3,091,159.77 \n(14)\nSeptember \n \n1,654,855.70 \n 2,812,183.17 \n(41)\n \nOctober \n797,320.08\n3,497,606.04\n(77)\n \nNovember \n789,914.28\n3,526,331.08\n(78)\n \nDecember \n708,759.51\n3,073,578.85\n(77)\nTOTAL \n17,691,047,48\n40,390,194,18\n(56)\n \n \n \n \n98 \n \n \nConsumptive Sector – Hunting Industry \n \n4.50 Total consumptive receipts for the period under review \ndeclined from US$20 million to US$11 million as \nevidenced on the Table 1 below. This figure is expected \nto increase marginally as the hunting season is drawing \nto a close. \n \nShipments by Sector (Jan to Dec 08)\n15%\n16%\n2%\n15%\n1%\n51%\nTobacco\nAgric\nMining\nManufacturing\nHunting\nHorticulture\n \n \n \n99 \n \n \n \n Hunting receipts \n \n2008 \n2007 \n \nMonth \nUSD \nAmount \nUSD \nAmount \n% Variance \nJanuary \n - \n \n13,461.00 \n (100) \nFebruary \n92,020.50\n \n171,783.00 \n (46) \nMarch \n680,829.00\n \n688,775.20 \n (01) \nApril \n1,470,171.78\n \n1,668,196.90 \n (12) \nMay \n1,815,603.60\n \n2,681,485.46 \n (32) \nJune \n2,188,155.40\n \n3,304,518.90 \n (34) \nJuly \n1,860,986.90\n \n3,728,311.30 \n (50) \nAugust \n1,801,518.40\n \n3,056,982.60 \n (41) \nSeptember \n1,039,143.70\n \n2,661,087.00 \n (61) \n \nOctober \n441,655.50\n1,825,934.80\n (76) \n \nNovember \n35,522.00\n609,625.96 (94) \nDecember \nn/a\nn/a\nn/a \nTOTAL \n11,425,606.78 20,410,162.12 (44) \n \n \n \n \n \n \n \n \n \n100 \n \n \n5. \nNEW POLICY MEASURES \n \nCURRENCY REFORMS \n \n5.1 Even in the face of the current economic and political \ndifficulties confronting the economy, the Zimbabwe \ndollar ought to and must remain the Nation’s currency, \nso as to safeguard our national identity and sovereignty. \n \n5.2 As Monetary Authorities we fully understand that while \nour country’s National Anthem, National Flag and \nterritorial integrity are fundamental political pillars of our \nsovereignty, these are complemented by our National \nCurrency which is a fundamental economic pillar of our \nsovereignty. \n \n5.3 Accordingly, therefore, this Monetary Policy Statement \nunveils yet another necessary programme of revaluing \nour local currency, through the removal of 12 zeroes, \nwith immediate effect, accompanied by the introduction \nof the following new currency denominations: \n \n \n \n101 \n \nThe New Family of Currency Denominations (after \nremoval of 12 zeros, with immediate effect): \n \n• $500 \n• $100 \n• $50 \n• $20 \n• $10 \n• $5 \n• $1 \n \nCO-CIRCULATION PERIOD… \n \n5.4 In order to ensure that the change over to the new re-\nvalued currency is smooth, and in order to also minimize \ninconvenience and the disruptions of stakeholders from \ntheir daily farming, mining, industrial or tourism \nactivities among others, the new re-valued currency will \ninitially co-circulate with the old currency up to the 30th \nof June, 2009. \n \n \n102 \n \n5.5 For the avoidance of doubt and ambiguities, what the \nco-circulation means is that the current denominations \nwill continue to circulate as legal tender with the \nfollowing value-equivalents: \n \n• The current $100 trillion note will be equivalent to the \nre-valued $100 note; \n \n• The current $50 trillion note will be equivalent to the \nre-valued $50 note; \n \n• The current $10 trillion note will be equivalent to the \nre-valued $10 note and so on. \n \n5.6 Beyond the 30th of June, 2009, the old family of \ndenominations will cease to be legal tender. \n \n \n \n \n \n103 \n \nEXTENDED SPECIAL FOREIGN EXCHANGE \nLICENCED SHOPS \n \n5.7 The policy direction of licensing shops to sell \ngoods and services in foreign exchange which was \nunveiled in October, 2008 has so far yielded the \nfollowing positive results: \n \n(a) An increase in the availability of basic \ncommodities, \nin \nour \nretailing \noutlets \nthroughout the country; \n \n(b) A remarkable dent on inflation, as signified by \nthe continued decline in the prices pegged in \nforeign exchange; and \n \n(c) Producers currently selling in foreign exchange \nare managing to directly access raw materials, \nenabling them to sustain and increase capacity \nutilization. \n \n104 \n \n5.8 The above benefits are, however, being undermined \nby the wanton disregard of the law by most \ncompanies and individuals who are illegally trading \nin foreign exchange. \n \n5.9 The Reserve Bank is broadening the licensing \nframework country-wide, so as to bring the bulk \nand indeed entirety of foreign exchange trade into \nthe visible formal market. \n \n5.10 The Extended Framework Foreign Exchange \nLicenced Shops will ensure that there is an \nincreased \nnumber \nof \nparticipating \noperators \nthrough licencing of those traders charging goods \nand services in foreign currency, and ensuring that \nthey fully account for all proceeds emanating from \nsuch activities. \n \n5.11 The extended framework for licencing of shops to \nsell goods and/or services in foreign currency \n \n105 \n \nimplies the transformation of the entirety of \nZimbabwe’s commercial sector into Special \nExport Processing Zones, or Foreign Currency \nGenerating Zones. \n \n5.12 In the absence of the traditional sources of foreign \ncurrency generation in the country, it is envisaged \nthat the expanded foreign exchange generation \ncapacity will bring untapped resources into the \nformal banking system thereby strengthen our local \ncurrency. \n \n5.13 The following sectors of the economy shall be \nlicenced to sell goods or services in foreign \ncurrency; \n \ni. Agriculture \nii. Manufacturing \niii. Mining \niv. Tourism \n \n106 \n \nv. Transport \nvi. Services \nvii. Construction \nviii. Banking and Finance \nix. Media \nx. Entertainment \nxi. Sport \nxii. Automotive Industry \nxiii. Distribution \nxiv. Energy \nxv. Small Scale Business Sector \nxvi. Flea Markets \nxvii. Post and Telecommunication \nxviii. Information Communication Technology \nxix. Education \nxx. Health \nxxi. Pharmaceutical \nxxii. Beauty and Care \nxxiii. Street Vendors \n \n \n107 \n \nLicencing Requirements \n \n5.14 All Stakeholders are, therefore being advised to \napply for the special foreign exchange licences, as \nany instances of trading in foreign exchange \nwithout the requisite licence will attract heavy \npenalties, including closure of all banking accounts \nin Zimbabwe and confiscation of goods or proceeds \nfrom \nsuch \nunlicensed \ntrades. \nA \ndetailed \nSupplement \nto \nthis \nStatement \noutlines \nthe \nintricacies of the enhanced licensing framework. \n \nOpen Market Sales to the Reserve Bank \n \n5.15 All licensed traders, save for those explicitly \nexempted, are to sell 5% of their gross foreign \nexchange sales to the Reserve Bank, at the going \nmarket exchange rate; \n \n \n \n108 \n \nPayment of Non-refundable Annual Licence Fees \n \n5.16 All traders to be licenced under the Extended \nFramework for Foreign Exchange Licenced Shops \nshall be required to pay a non refundable annual \nlicence fee, as follows:- \n \nTable: 2 Payment of Foreign Exchange Licenced Shops Annual \nLicence Fees \n \n \nZONE \nCITY/TOWN/LOCATION\n(Examples) \nANNUAL \nLICENCE FEES \n(PAYABLE IN 12 \nMONTHLY \nINSTALMENTS) \n \nUrban \n(All Sectors) \n \nHarare, Bulawayo, Mutare, Masvingo, \nGweru, \n \n \nUSD12,000 \nper \noutlet \nannum \n \n \n \nPeri – Urban \n(All Sectors) \nRedcliff, Seke, Ruwa \nUSD 6,000 per outlet per \nannum \n \n \n \nTowns \n \n(All sectors and all areas with \ntown council status) \n \n \nKadoma, Chegutu, Beitbridge, \nBindura, Chiredzi, Chinhoyi, Karoi, \nMarondera, Kariba, Gwanda, \nChitungwiza, Zvishavane, KweKwe \n \n \nUSD 4,000 per outlet per \nannum \n \n \n \nRural \n \n(All sectors and areas with rural \ndistrict council status) \nMt Darwin, Mutoko, Murehwa, \nChimanimani, Nyanga, Esigodini, \nLupane, Filabusi \nUSD 1,200 per outlet per \nannum \n \n \n \nSmall to Medium Enterprises (All \nSectors Registered with Ministry \nof SMEs) \nUrban Council located \nUSD 3,000 per outlet per \nannum \n \n109 \n \nZONE \nCITY/TOWN/LOCATION\n(Examples) \nANNUAL \nLICENCE FEES \n(PAYABLE IN 12 \nMONTHLY \nINSTALMENTS) \nSmall to Medium Enterprises (All \nSectors Registered with Ministry \nof SMEs) \nTown Council located \nUSD 2,000 per outlet per \nannum \nHawkers – Urban \nAs Above \nUSD25 (once off \npayment) \n \nHawkers - Town \nAs Above \nUSD10 (once off \npayment) \nHawkers - Rural \nAs Above \nFree Licencing \nSchools and Tertiary Institutions \nAll Zones \nFree Licencing \nFarming Community – A2 \n \nAll Zones \nUSD 1,200 per outlet \nFarming Community – A1 \n \nAll Zones \nFree Licencing \n \n \nAdoption of Dual Pricing Arrangements \n5.17 The Zimbabwean dollar remains the country’s \nlegal tender as recognised by the various legal \nstatutes, and as such shall continue to be used as a \nmedium of exchange for all transactions in the \ncountry. \n \n5.18 All traders shall therefore in addition to selling \ntheir goods and services in foreign currency, adopt \na dual pricing framework where goods will also be \nquoted in local currency. This means that prices \n \n110 \n \ncan be in Rand and Zimbabwe Dollars, USDollar \nand Zimbabwe Dollar as the case may be. \n \n5.19 The dual pricing framework to be adopted by all \nlicenced entities shall be legally enforceable and \nthe pricing formulae to be implemented shall be \nbased on the inter-bank market determined \nexchange rate which shall be fixed at the mid-rate \nlevel and communicated to the market by the \nReserve Bank of Zimbabwe on a regular and/or as \nappropriate. \n \n5.20 The Extended Framework for Foreign Exchange \nLicenced Shops is expected to achieve the desired \nobjective of increasing the number of participating \noutlets and covering a wide spectrum of the \ncountry’s economic sectors to ultimately increase \nthe availability of goods and services in the \ncountry. \n \n \n111 \n \n5.21 In order to improve the competitiveness of \nForeign Exchange Licenced Shops, thereby ensure \nthe sustainable provision of goods and services by \nboth the public and private sector, the following \ninstitutions’ trading arrangements, shall be re-\noriented in line with this Extended Framework. \n \nParastatals and Public Utilities \n \nZimbabwe Electricity Supply Authority (ZESA) \n \n5.22 In recognition of the challenges faced by ZESA in \nimporting electricity from neighbouring countries \nand the sourcing of spare parts and the need to \nretain critical staff, ZESA will, with immediate \neffect be granted a licence to bill or charge their \nelectricity tariffs in foreign currency. \n \n5.23 However, in order to protect the disadvantaged \ngroups in society, the levying of electricity tariffs \n \n112 \n \nin foreign currency shall be limited to corporates \n(both exporting and non-exporting, and Foreign \nExchange Licenced Shops), NGOs, Embassies, \nInternational Organisations, and residents in low \ndensity suburbs. \n \n5.24 Residents in high density areas and those domiciled \nin the communal areas shall continue to pay \nelectricity tariffs in local currency. This is in line \nwith the recently announced 2009 National Budget. \n \nZimbabwe National Water Authority (ZINWA) \n \n5.25 Our position, as Monetary Authorities regarding \nZINWA is well known and documented. We \nbelieve ZINWA should go back to Local \nAuthorities as we recommended to Government a \nlong time ago. We are happy that Government \naccepted our recommendation. While Government \nis still working out the logistics of disentanglement, \n \n113 \n \nwe have given ZINWA the licence to charge all \ncorporates and residents in low density suburbs in \nforeign currency. All high density and communal \nconsumers, \nhospitals, \nnon-foreign \ncurrency \ncharging schools and social centres shall continue \nto be levied in local currency, where necessary. \nThis is in line with the recently announced 2009 \nNational Budget. \n \nHwange Colliery Company \n \n5.26 To improve capacity utilization and ensure \navailability of coal to industry and commerce, \nHwange Colliery has been granted, with immediate \neffect, licence to sell coal and its associated \nproducts to all their customers in foreign currency. \n \n5.27 Hospitals, schools not charging in foreign exchange \nand other social centres shall continue to pay for \n \n114 \n \ncoal supplies in local currency. This is in line with \nthe recently announced 2009 National Budget. \n \nMilk Producers \n \n5.28 In recognition of the fact that milk producers’ \nexpenses \nsuch \nas \nDairiboard, \nare \nlargely \ndenominated in foreign currency and given the \nneed to improve the supply of milk and \nsubsequently \nre-energise \nthe \ndairy \nsector, \nDairiboard has been, with immediate effect, \ngranted permission and licence to charge for all its \nmilk products in foreign currency. \n \nLocal Authorities \n \n5.29 To encourage and facilitate the restoration of \nefficient service delivery, that is, refuse collection, \nroad maintenance, health delivery and other \nservices, all Local Authorities are, with immediate \n \n115 \n \neffect, being granted licences to charge their rates \nand other fees in foreign currency to all corporates \nand low density residential areas. This is in line \nwith the announced 2009 National budget. \n \n5.30 Charges for high density residential areas, \nhospitals, schools not charging in foreign exchange \nand other social centres shall continue to be in local \ncurrency. \n \nAir Zimbabwe (Pvt) Ltd \n \n5.31 In order to ensure viability of the Airline and less \ndependency on Government for fuel, spare parts, \nIATA fees and other foreign currency related costs, \nAir Zimbabwe was granted, a licence to charge for \nall its fares on local, regional and international \nflights in foreign currency. This is in line with the \nrecently announced 2009 National Budget. \n \n116 \n \nTelOne, NetOne and POTRAZ \n \n5.32 TelOne, NetOne and POTRAZ, including all \nservice providers in the telecommunications \nindustry, shall charge for their services in foreign \ncurrency. This is in line with the recently \nannounced 2009 National Budget. \n \nNRZ and ZUPCO \n \n5.33 The Monetary Authorities recognize challenges \nbeing faced by players in the transport sector in \nprocuring spares parts and fuel. \n \n5.34 With immediate effect, the National Railways of \nZimbabwe, ZUPCO, Rural Transport Operators \nand Commuter Omnibuses, shall charge for their \nservices in foreign currency. This is in line with the \n2009 National Budget. \n \n \n117 \n \nPrint and Electronic Media \n \n5.35 To \nenhance \nthe \nZimbabwe \nBroadcasting \nCorporation’s (ZBC) ability to reach to all corners \nof the country, with immediate effect, ZBC shall be \nallowed to charge licencing fees, advertising slots \nand any other services in foreign currency. \n \n5.36 All players in the print media shall also charge for \ntheir products in foreign currency. This is in line \nwith the recently announced 2009 National Budget. \n \nReal Estate \n \n5.37 All property transfers shall be paid in foreign \ncurrency. However, no such transfers shall be \nconcluded without authentication of the mode of \npayment for the property from the Deeds Office. \n \n \n118 \n \n5.38 The Deeds Office shall closely work with \nExchange Control to ensure that all players comply \nwith this requirement. \n \nStreet Vendors and Hawkers \n \n5.39 Street vendors and hawkers operating in urban \nareas, as designated by the country’s laws, shall be \neligible for the payment of a once-off licence fee of \nUSD25 or its equivalence, prior to issuance of the \nReserve Bank identification card for licencing to \nsell in foreign currency. \n \n5.40 They will not be compelled to sell to the Reserve \nBank the statutory 5% requirement. \n \nRural Traders \n \n5.41 In order to encourage investment into rural areas \nand promote increased supply of basic commodities \n \n119 \n \nto the rural populace, all business centres under \nRural District Councils shall be designated Foreign \nCurrency Free Zones. \n \n5.42 All rural traders domiciled in these Foreign \nCurrency Free Zones shall pay an annual licence \nfee of USD1,000 and shall be exempt from the \nopen market sales to the Reserve Bank. \n \n5.43 Notwithstanding the non-application of licence \nfees and surrender requirements, all rural traders \nshall be compulsorily licenced. \n \nSchools and Tertiary Institutions \n \n5.44 All academic institutions intending to charge \nschool fees in foreign currency will be exempted \nfrom the payment of the annual licencing fees and \nthe 5% upfront market sales. These will however \nstill need to be licenced under the framework. \n \n120 \n \n \n5.45 Urban and private schools as well as tertiary \ninstitutions shall be allowed to charge fees in \nforeign currency. Communal schools shall levy \ntheir fees in local currency. \n \nAgricultural Sector \n \n5.46 Agricultural trade and marketing in Zimbabwe is \ncurrently governed by various statutes meant to \nprotect consumers and producers from instability of \nagricultural commodity prices. \n \n5.47 Agriculture is well diversified with over 23 types \nof food crops and cash crops grown. The main food \ncrops include maize, sorghum, pearl millet, finger \nmillet, groundnuts, soyabeans, wheat, sugarcane, \nbarley and sunflower. \n \n \n121 \n \n5.48 The main cash crops are tobacco, cotton, coffee, \ntea and horticultural products. The main livestock \nproduction include beef, dairy, poultry, pork, small \nruminants, ostrich and other farm animals on a \nsmaller scale. \n \n5.49 Marketing of the majority of these agricultural \nproducts was liberalized during the Structural \nAdjustment Programme from 1990 to 1997, which \nsaw the commercialization and full liberalization of \nmarketing in dairy, beef, cotton, soyabeans, \ngroundnuts, and horticultural products. \n \n5.50 However, the current marketing of agricultural \nproducts has been heavily influenced by Exchange \nControls inhibiting producers to directly charge \nforeign currency for the commodities traded given \nthe policy thrust to have producers receiving import \nparity prices for all commodities. \n \n \n122 \n \n5.51 Changes to marketing of these commodities \nrequire that authority be granted to producers \nand commodity traders to charge in foreign \ncurrency for both domestic agricultural produce \nand imports. \n \n5.52 Currently, Government controls the marketing of \ntobacco, cotton, maize, sorghum, millets, and \nwheat. \n \nMarketing of Non-exportable Agricultural Produce. \n \n5.53 Currently maize, sorghum, millets, and wheat are \nspecified products under the Grain Marketing \nBoard Act. These products can only be traded \nthrough the GMB or with their express authority. \n \n5.54 These grains play an important role in national \nfood security, as they are the major staple cereal for \n \n123 \n \ndirect consumption and therefore strategic for \nnational and household food security. \n \n5.55 Specification of these products under the Grain \nMarketing Board Act was meant to influence \nproduction, price stability, distribution and supply \nof the grains and their finished products and also to \nclosely monitor the food balance sheet for the \ncountry. \n \n5.56 Shortages of foreign currency through the formal \nchannels and structural inefficiencies of the GMB \nhave meant that producers have been unable to \nreceive import parity prices for their products \nresulting in rampant side marketing and smuggling. \n \n5.57 As Monetary Authorities we are pleased that the \nActing Minister of Finance last week unveiled \nmeasures committing GMB to pay import parity \nprices in foreign exchange. \n \n124 \n \n \n5.58 Under the new framework, farmers can thus, now \nsell their produce in foreign exchange. \n \nMarketing of Exportable Agricultural Produce \n \nTobacco \n5.59 The marketing of tobacco is currently governed \nthrough the Tobacco Industry and Marketing and \nLevy Act administered by TIMB. \n \n5.60 In order to ensure that tobacco growers are fairly \ncompensated and enable the reinvestment of their \nproceeds into future production, tobacco growers \nshall be entitled to 100% of the foreign currency \nproceeds from the sale of tobacco at the auction \nfloors or any designated contract of sale point. \n \n5.61 This means that all tobacco merchants shall be \nrequired to raise offshore lines of credit for \n \n125 \n \npurposes of purchasing tobacco from the auction \nfloors and financing of contract growing of \ntobacco. In this regard, no merchant shall be \nallowed to purchase green leaf tobacco using \nforeign exchange resources sourced from the \nlocal market. \n \nCotton \n5.62 The new cotton marketing arrangements shall \nallow cotton merchants to purchase cotton seed \nfrom growers in foreign currency and to charge \nlocal spinners and weavers in foreign currency for \nlint sold domestically. Cotton ginners shall also be \nallowed to sell seed cotton in foreign currency. \n \n5.63 The cotton merchants shall also be required to \nraise offshore lines of credit for purposes of \nfinancing \ncontract \ngrowing \nand \nfarm-gate \npurchases \nof \ncotton. \nSimilarly, \nno \ncotton \nmerchant shall be allowed to purchase cotton \n \n126 \n \nusing foreign currency sourced from the local \nmarket. \n \n5.64 All tobacco and cotton pre-shipment finance and \nloans for merchants shall be registered with the \nReserve Bank for monitoring purposes. \n \n5.65 In this connection, all farmers intending to \ncharge their agricultural produce of non-controlled \ncrops in foreign currency shall be licenced by \nExchange Control under the Extended Framework. \n \n5.66 Such farmers shall be exempted from the \npayment of the annual licencing fees and the 5% \nupfront market sales to promote infrastructure \ndevelopment in farms and enhance agricultural \nproductivity. \n \n \n127 \n \nBanking and Finance \n \n5.67 For my colleagues in the Banking Sector, I have \na piece of advice for them in these challenging \ntimes. It is now time for the industry to develop \naggressive marketing strategies, incentives and \nproducts that promote banking in foreign currency, \nespecially by individuals. \n \n5.68 With immediate effect, all restrictions on foreign \ncurrency cash withdrawals are removed. Banks are \ntherefore, required to implement complementary \nmeasures to ensure that cash is readily available to \nthe transacting public. In this respect, Banks shall \ncontinue to be allowed to import foreign currency \ncash from their Nostro Accounts. \n \n \n \n \n \n128 \n \nBANK CHARGES \n \n5.69 To ensure the viability of the Banking Sector, \nAuthorized Dealers can now levy their bank \ncharges for Foreign Currency Accounts and related \ntransactions in foreign currency, export for non-\nforeign exchange earning entities, individuals and \nother special cases. \n \n5.70 Banks are further encouraged to apply prudent \nlending practices when lending to individuals to \nfinance their Current Account transactions. Such \nlendings shall attract an interest rate of not more \nthan LIBOR + (1-6 %) depending on customer risk \nassessment profiles. \n \n5.71 The Exchange Control priority list for payments, \nis hereby removed and market players are expected \nto compete for funds. Banks are, however, \nencouraged to ensure that most of their loan \n \n129 \n \nadvances is biased towards the productive sector to \nreinvigorate the supply side of the economy. \n \nPoint of Sale Convenience \n \n5.72 The Foreign Exchange Licenced Shops trading \narrangements have also brought about challenges to \nthe transacting public in respect of lack of lower \ndenominations \n(coins) \nand \nemergency \nof \ncounterfeit notes. \n \n5.73 In order to encourage the banking sector to apply \nits innovative ideas in the establishment of plastic \nmoney and bring more convenience to the \ntransacting public in Foreign Exchange Licenced \nShops, banks that install POS machines and \nsystems in foreign exchange trading areas shall be \nexempt \nfrom \nthe \nopen \nmarket \ndisposal \nrequirements on their foreign currency earnings. \n \n \n130 \n \n5.74 Banks are expected to encourage the transacting \npublic to open individual FCAs through which the \nPOS systems shall be implemented in line with the \nZIMSWITCH mechanism. \n \n5.75 In addition, banks are encouraged to have debit \ncards (Master card/Visa) for their FCA customers, \nfor \ntransactional \npurposes, \nlocally \nor \ninternationally. \n \nPayment of Salaries in Foreign Currency \n \n5.76 All registered foreign exchange licenced shops \nare advised that they can pay their employees in \nforeign currency from the proceeds of their \nregistered activities, with no Exchange Control \napproval required. \n \n5.77 Such payment of salaries will, however, be done \nunder advice to Exchange Control and the salaries \n \n131 \n \nwill only be paid through the employees’ FCAs \nestablished with local Authorised Dealers. \n \n5.78 The same modalities on the payment of salaries \nin foreign currency shall also apply to staff of \norganisations \nsuch \nas \nNon-Governmental \nOrganisations, \nEmbassies, \nInternational \nOrganisations and Diplomatic Missions, whose \nfunds are treated as free funds. \n \n5.79 All corporates shall with immediate effect be \nallowed to pay salaries in foreign currency for their \nemployees \nwithout \nprior \nExchange \nControl \napproval. However, all such requests shall be \nprocessed at bank level. \n \nLEGISLATIVE SUPPORT \n \n5.80 For this framework to yield the expected positive results, \na \nfirm \nLegislative \nand \nJudicial \nreinforcement \n \n132 \n \nmechanism, supported by active follow-ups and \nsurveillance \nprogrammes \nby \nthe \ncountry’s \nlaw \nenforcement arms to ensure that only those licensed can \ntrade in foreign exchange has been put in place. \n \n5.81 Given the extended nature of the licensing framework, \nthere is no reason why companies or individuals should \nbe tempted to operate without a licence and thereby \nrisking a brush with the law. \n \nGOODS PURCHASE VOUCHERS IN FOREIGN \nEXCHANGE \n \n5.82 In order to deepen the participation of traders and \nproducers of goods and services in the special foreign \nexchange shops programme, the Reserve Bank is inviting \nwilling participants, particularly retailers and wholesalers \nto promote customer loyalty in their brands through \nissuance of Goods Purchase Vouchers in Foreign \nExchange. \n \n \n133 \n \n5.83 Under this framework, the participating retail and \nwholesale outlets develop buying credit schemes where \nthey \nissue \nvouchers \nto \ninstitutions \nfor \nonward \ndistribution to their staff for use in buying from the \nlicensed shops. \n \n5.84 The institutions receiving the vouchers then enter into \nconcrete foreign currency credit schemes with the sellers, \nsettling the underlying foreign exchange debts directly on \nbehalf of their staff. \n \n5.85 As Monetary Authorities, we are pleased that already \nsome traders have come forward with offers of such \ncredit schemes which the Reserve Bank, on behalf of the \nMinistry of Finance, and is going to operationalise for \nthe convenience of our Civil Servants throughout the \ncountry beginning this month. The vouchers concerned \nform the first charge against Government’s foreign \ncurrency collections and the necessary authorities from \nboth Ministry of Finance and ZIMRA are in place. \n \n134 \n \n \nTO DOLLARISE OR NOT TO DOLLARISE \n \n5.86 As Monetary Authorities, we wish to highlight that the \nframework of licensing the special foreign exchange \nshops does not amount to the dollarisation of the \neconomy in the strict technical sense of the word. All we \nare doing is to liberalize our trading environment by \nmulti-currencying it. \n \n5.87 This is a tailor-made strategic intervention that is meant \nto bring convenience to the general public, as well as \nsupporting productive efficiencies, whilst at the same \ntime preserving the sovereign Zimbabwe dollar by giving \nit company among other currencies of choice, which is \nthe essence of multi-currencying. \n \nRESERVE ASSETS \n \n5.88 As announced by the Minister in his Budget, \nGovernment has reclassified into Strategic Reserve \n \n135 \n \nAssets for the country, the following minerals as is the \ncase with gold: \n \n(a) Gold; \n(b) Diamonds; \n(c) Platinum; and \n(d) Emeralds. \n \n5.89 What this means is that the Reserve Bank will, with \nimmediate effect, licence and closely oversee the \nfinancial flows in these minerals, as well as other \nmarketing arrangements, with close cooperation with the \nMinistry of Mines and other relevant arms of \nGovernment. \n \n5.90 As Monetary Authorities, we implore the legislative arms \nof Government to enact the necessary supportive \nstatutory measures that will enable us to maximize \neconomic value out of our strategic minerals. This matter \nhas remained hanging for a very long time until now. \n \n \n136 \n \nEXCHANGE RATE MANAGEMENT \n \n5.91 As clearly stated in the Fiscal Budget proposals \nprescribed last week by the Minister, the exchange rate \nremains a key instrument for policy signalling and \npromotion of foreign exchange generation in the \neconomy. \n5.92 In line with the Minister’s delegated authority to the \nGovernor, I hereby advise that with effect from today, \nthe following exchange rate arrangements, will come into \neffect: \n \n(a) All economic foreign exchange transactions will be \neffected at the interbank exchange rate, determined \nthrough the voluntary buying and selling activities of \neconomic agents through the banking system. \n \n(b) Given the currency revaluation, combined with the need \nto give impetus to the export sectors, the starting \ninterbank exchange rates will be at: \n \n \n137 \n \n• \nZ$2 (re-valued) (Two trillion Zimbabwe Dollars \nbefore Revaluation), is to equal a unit of the \nSouth African Rand; and \n• \nZ$20 \n(re-valued), \nZ$20 \ntrillion \nbefore \nrevaluation; to a unit of the US dollar, with all \ncross rates against all the other currencies \napplying. \n \n(c) Post the 2nd of February, 2009, the exchange rate shall be \ndetermined in the market, with midrate average daily \nrates being published from public data to guide the \ntransacting public and the rest of the economy. \n \nLOCALISATION OF PLATINUM AND DIAMOND FCAs \n \n5.93 With effect from the 2nd of February, 2009, all special \ndispensations allowing the platinum and diamond mining \ncompanies to keep offshore FCAs has been and is hereby \nrevoked, so as to ensure that Zimbabwe’s extractive \nindustries fully benefit the local economy. \n \n \n138 \n \n5.94 What this means is that by the 2nd of February, 2009, all \noffshore accounts currently collecting Zimbabwe’s \nexports should be transferred and banked onshore with \nZimbabwe domiciled banks of one’s choice. \n \n5.95 It is important to note that this move does not in any way \ntake funds from the affected companies, as they will \ncontinue to have 100% autonomy on the management of \ntheir localized FCAs, as is the case with all other \nexporters. \n \nINTEREST RATES \n \n5.96 In order to give the banking sector robust income \nstreams, particularly in light of the shift of the bulk of \ntheir expenditure overheads into foreign exchange, the \nReserve Bank encourages banks to deepen issuance of \nforeign exchange loans in support of productive \nactivities. \n \n5.97 Under this framework, the country will have a two-tier \nmoney market system, comprising local currency \nlending, which will be at inflation-consistent interest \n \n139 \n \nrates, and foreign exchange lending which will be at \ninterest rates that take into account the banks’ risk \nassessments, as well as the cost of capital in international \nfinancial markets. \n \n5.98 Banks are, therefore, encouraged to formulate consistent \ncredit risk systems that ensure that there is no prejudice \nto those stakeholders who want to borrow in Zimbabwe \ndollars, whilst at the same time ensuring healthy asset \nportfolios on foreign exchange lending. \n \n5.99 Whist it is not the intention of the Reserve Bank to \nprescribe banks’ lending rates in foreign exchange, past \nexperiences where some banks have gone rogue to the \ndetriment of the welfare of the public impel that general \nguidelines be provided. \n \n5.100 \nAccordingly, therefore, all banks providing foreign \nexchange loans shall present to the Reserve Bank their \ngeneral term sheets across different risk categories for \nassessment of reasonableness and approval. \n \n \n140 \n \n5.101 \nThis oversight process is meant to ensure that \nborrowers are protected from predatory interest charges. \n \n5.102 \nReflecting \nthe \nReserve \nBank’s \ngeneral \nunwillingness to create inflationary pressures through \nlending to the banking system, accommodation rates on \nlocal currency lending will continue to be highly penal, \nand shall remain pegged at the current levels of: \n \n• \n10, 000% for secured local currency lending; and \n• \n40, 000% for unsecured local currency lending. \n \n5.103 \nIt should be noted that this approval process will \nonly determine the upper limit tolerance levels above \nLIBOR (London Interbank Borrowing Rate), and each \nbank will be free to vary the obtaining interest levels \nwithin that threshold on a loan by loan basis. \n \nDEVELOPMENT AND ENERGY SECTOR FINANCE \n \n5.104 \nAs was previously announced to the public, Fiscorp \n(Pvt) Ltd will, during the course of this year, be \n \n141 \n \ntransformed into a fully fledged Development and \nEnergy Sector Financing Institution. \n \n5.105 \nThis institution, which would be self-funding, \nwould take-up what are currently quasi-fiscal operations \nof the Reserve Bank. \n \n5.106 \nThe thrust of the Reserve Bank would, therefore, be \nconcentrated on inflation control, financial sector \nstability and foreign exchange management. \n \nFINANCIAL SECTOR CONSOLIDATION \n \n5.107 \nIn order to cushion the country’s financial system \nfrom the current global financial melt-down, there is \nneed for our banks’ capital bases to be deepened. \n \n5.108 \nFor this to be achieved, banks are encouraged to \nconsolidate and strengthen their operations through \nmergers and/or shareholder capital injections. \n \n142 \n \nSTATUTORY RESERVES MANAGEMENT \n \n5.109 \nThe \nswiftly \nevolving \nlocal, \nregional \nand \ninternational financial environment requires that greater \nemphasis be placed on striking a fine balance between \nguidelines that promote operational viability of banks \nand those measures that seek to achieve medium to long-\nterm solvency in the financial sector. \n \n5.110 \nConsistent with this, it has become necessary that \nthe Reserve Bank reviews and fine-tunes its statutory \nreserves policy. \n5.111 \nUnder the current framework, the statutory reserves \npayments are as follows: \n \nSTATUTORY RESERVE LEVELS \n \nStatutory Reserve Ratios ( effective 25 March 2008) \nCommercial banks and Merchant banks \nCurrent Level \nDemand and call deposits \n50% \n \n \nSavings accounts \n50% \n \n \nRepos and buybacks \n50% \n \n \nDiscount Houses \n50% \n \n143 \n \n \n \nFinance Houses \n40% \n \n \nBuilding Societies \n10% \n \n \n5.112 \nIn line with the changing operating environment, the \nfollowing statutory reserves framework shall apply, with \neffect from Friday the 6th of February, 2009: \n \nNew Statutory Reserves \n \nDeposit Clusters \n \n \nCommercial banks and \nMerchant banks \nOld Level \n(local currency) \nNew Level \n(on local currency \ndeposits) \nNew Level on \nForeign Currency \nDeposits \n \n \n \n \nDemand and call deposits \n50% \n15% \n10% \n \n \n \n \nSavings accounts \n50% \n15% \n10% \n \n \n \n \nRepos and buybacks \n50% \n15% \n10% \n \n \n \n \nDiscount Houses \n50% \n15% \n10% \n \n \n \n \nFinance Houses \n40% \n10% \n7% \n \n \n \n \nBuilding Societies \n10% \n5% \n2,5% \n \n \n \n \n \n \n \n144 \n \n5.113 \nAll banking institutions are called upon to ensure \nthat their operational systems comply with these \nrequirements. \n \nFCA RETENTION BY EXPORTERS \n \n5.114 \nIn order to give further impetus to our exporters, the \nFCA upfront sales to the Reserve Bank has been reduced \nfrom the current 15% of exports to 7,5%, with effect \nfrom 1 February, 2009. \n \n5.115 \nThis means that exporters can now retain 92,5% of \ntheir export proceeds in their FCAs. \n \nLIQUIDATION OF FCAs \n \n5.116 \nIn order to build confidence in the country’s foreign \nexchange market, all holders of FCAs, including \nexporters can hold foreign exchange in their FCAs \nindefinitely. \n \n \n145 \n \n5.117 \nThe 21 day liquidation requirement, has, therefore, \nbeen revoked with immediate effect. \n \nWAY FORWARD ON THE ZIMBABWE STOCK \nEXCHANGE \n \n5.118 \nFor some time now, there has been no trade on the \nZimbabwe Stock Exchange (ZSE), as the market \nabsorbed the aftermaths of the rogue trading that had \ngripped the bourse during the second half of 2008. \n \n5.119 \nIn order to safeguard the ZSE from relapsing into a \nsimilar disruptive mode, it is pleasing to note that the \nrelevant oversight authorities namely the Securities \ncommission are putting in place a strict code of conduct \nand tight risk Management guidelines with the backing \nof the Ministry of Finance. Again the Minister of \nFinance was very clear in his pronouncements relating to \nthis subject in his Budget Statement last week. \n \n5.120 \n It is also recommended that the ZSE enables \ncompanies to raise foreign exchange by putting in place \n \n146 \n \ninternally consistent frameworks that enable the \nvaluation and trading of shares in foreign exchange as \nalready approved through the budget Statement. \n \n5.121 \nThe Reserve Bank stands ready to issue the ZSE \nwith appropriate foreign exchange licences so as to \ntransact in foreign exchange legally in terms of the \nExchange control Regulations. \n \n5.122 \nTo kick-start this process, listed companies, together \nwith their auditors, working in conjunction with the ZSE \nmust come up with transparent and robust valuation \ncriteria enabling both domestic and foreign investors to \ntrade their shares in foreign exchange. \n \nSHARE TRADING FOREIGN EXCHANGE DISPOSAL \nTO THE RESERVE BANK \n \n5.123 \nIn order to transform the Stock Exchange into a \nviable medium of economic development, once fully \nlicensed to trade in foreign exchange, the following \nExchange Control Regulations shall apply on all trades \non the ZSE conducted in foreign exchange: \n \n147 \n \n \n(a) A financial sector stability levy of 1.5% shall be payable \nto the Reserve Bank in foreign exchange; and \n \n(b) Each seller of shares in foreign exchange shall liquidate \n3.5% of proceeds to the Reserve Bank at the going inter-\nbank exchange rate. \n \n5.124 \nStock broking firms and Authorised Dealers will be \nobliged to ensure that these Exchange Control \nRegulations are fully complied with. \n \nGOLD PRODUCERS \n \n5.125 \nThe gold sector has, over the past 18 months, \nregistered unprecedented declines. \n \n5.126 \nIn order to reverse this undesirable development, the \nfollowing framework shall apply in the marketing of \ngold, with effect from 1 February, 2008; \n \n \n148 \n \nRetention… \n \n(a) All gold producers shall retain 92,5% of their sales in \nforeign exchange as is the case with all the other \nexporters; \n \n(b) Those wishing to liquidate part of their FCAs will be free \nto do so; \nPayment Modalities… \n \n(c) Each gold producer, upon delivery of produce to Fidelity \nPrinters, and upon the certification of the actual purified \nvalue, will get a gold export certificate; \n \n(d) The gold producer shall make arrangements to market \nand ship its gold, which shall be consigned out of \nFidelity to the gold producer, net of the 7,5% portion to \nbe sold to the Reserve Bank and purification charges as \nagreed with Fidelity Printers and Refiners. The exporting \nof the physical gold shall, however, conform with the \nusual CD1 documentation so as to avoid illegal \nexternalisation of the country’s resources; and \n \n149 \n \n \nGOLD LOANS \n \n(e) Each gold producer is free to access gold loans from \noffshore markets, collateralised by physical gold as \nretained, post full assaying and deduction of processing \ncharges by Fidelity Printers and Refiners. \n \nGOLD SECTOR ARREARS \n \n5.127 \nAs Monetary Authorities, it is not our policy to \ndeliberately compromise the productive efficiencies in \nthe economy. \n \n5.128 \nThe outstanding arrears to gold producers are in \nessence a reflection of the acute foreign exchange \nshortages prevailing in the economy, aggravated by the \nillegal sanctions against the country, together with the \noperational constrains attendant in the hyper inflationary \nenvironment. \n \n5.129 \nIn order to contribute positively towards the \nrecovery of the gold sector, all outstanding amounts to \n \n150 \n \nthe gold sector have been converted into Special \nTradable Gold-backed Foreign Exchange Bonds that \nhave the following features: \n \n(a) Tenor: 12 months; \n \n(b) Interest: 8% per annum on maturity. Interest shall be \napplied in retrospect from the date the amounts fell due; \n \n(c) The holder can sell the bonds to any interested \ncounterparty locally, regionally or internationally at \nagreed time-to-maturity discounts; and \n \n(d) The Reserve Bank of Zimbabwe will honour the full \nprincipal plus interest on maturity to the holders of the \nbonds on maturity. \n \n151 \n \n \n6. EXCHANGE \nCONTROL \nPOLICY \nDEREGULATION \n \n6.1 In his 2009 Budget presentation in Parliament \nlast week, the Acting Minister of Finance made \nthe observation that and I quote; \n \n“The 2009 Budget revenue estimates I am \ntabling … require that we successfully implement \ncomprehensive and mutually reinforcing macro-\neconomic reforms, including the removal of all \nprice controls and distortions which though noble \nin their intentions, have however had the opposite \nand unintended consequences on the economy. It is \nin the light of that I have proposed fundamental \nmacro and micro economic reforms encompassing \nfiscal, monetary and exchange reforms, structural, \npricing as well as legal and institutional reforms \n \n152 \n \ntargeted at stimulating positive supply response” \nend of quote. \n \n6.2 In deregulating Zimbabwe’s Exchange control \nPolicies that have been in place for almost 12 years \nnow, we have had to recognise that the \nZimbabwean economy has in the past ten years \ngone through a cycle of complex socio-economic \nchallenges, with a denting effect on the productive \nsectors of the economy, thereby impacting \nnegatively on the country’s capacity to generate \nforeign exchange resources. \n \n6.3 \nThe socio-economic imbalances have manifested \nthemselves in a number of areas primary of which \nhas been \n \n• the persistent foreign currency shortages and \ndrying \nforeign \nexchange \nreserves; \nlow \ninvestment capital inflows, hyper-inflation, \n \n153 \n \n• Pessimism, \nshort-termism, \nand \nrampant \nspeculation and corruption among other \nnegatives. \n \n6.4 \nThese negative developments, which have been \ncompounded by the damaging effect of the illegal \nsanctions imposed on the country, have taken a grip \non the economy, halting our potential and ability to \ncompete effectively on the international front. \n \n6.5 \nAgainst this plethora of challenges, a series of \nhomegrown monetary and fiscal initiatives have \nbeen implemented to invigorate the country’s \nproductive capacity. \n \n6.6 \nWhile a lot of success has been witnessed from \nsuch timely and well nurtured Central Bank’s \ninterventionist strategies, the Zimbabwean story \nstill remains one of pain, with a lot of our people \nbeing pushed into impoverishment, in a country \n \n154 \n \nwhose potential is sufficient to elevate the economy \nto the league of successful nations. \n \n6.7 \nSADC, has through a framework of Exchange \nControl reforms under Article 4 on Areas and \nNature of Co-operation and Co-ordination for \nMember States, sought to have member countries: \na) Liberalise current, capital and financial \naccount transactions, \nb) Achieve \nconvergence \nand \nfull \ncurrency \nconvertibility amongst Member States; and \nc) Improve \nthe \navailability \nof \ninformation \nregarding cross border foreign exchange flows \namongst Member States. \n \n \n155 \n \n7 EXCHANGE \nCONTROL \nDEREGULATION \nPOLICY MEASURES \n \n7.1 \nPursuant to the above arguments for a \ndifferent approach from the past, the public is \nadvised that Monetary Authorities, have with \nimmediate effect, adopted a well sequenced \nprogramme of liberalisation of the country’s \ntrade and exchange controls, beginning with \nmeasures articulated below. \n \n \nPAYMENTS OF GOODS AND SERVICES \n \n7.2 \nWith \nimmediate \neffect, \nindividuals \nand \ncompanies are free to pay for goods and services \noffshore, as well as pay for genuine external debts \nwithout prior Exchange Control approval. It \nshould be noted, however, that Banks are expected \nto continue recording these payments and report to \nthe Reserve Bank in line with the stipulated \n \n156 \n \nreporting systems to be determined from time to \ntime. \n \n7.3 \nThe Exchange control arm of the Central bank \nwill be conducting training workshops to assist \nbanks in adapting to this liberalised environment. \n \nSpecifics on Current Account Transactions \n \n7.4 \nForeign Payments (Imports): As already \nindicated, with immediate effect, the Reserve \nBank has decentralise the processing of import \npayments applications with the delegation of the \napplication approval process to Authorised \nDealers. Banks are called upon to strengthen their \nExchange control units to enable swift processing \nof transactions. \n \n7.5 \nExports – With immediate effect the Reserve \nBank of Zimbabwe is delegating the role of export \n \n157 \n \nadministration to Authorised Dealers in a gradual \nmanner. \nThis \nshall \ninclude \napproval \nof \napplications to export, as well as the acquittal \nupon receipt of payment; Exchange Control’s \ncentral \nfocus \nwill \nbe \nexport \nfacilitation, \nadministration and foreign exchange mobilisation, \nas well as exercising oversight to plug any \nattempts of externalisation of resources. \n \n7.6 \nThese Exchange Control deregulation policy \nmeasures are expected to result in a positive \nsupply response in the productive sectors of the \neconomy. \n \n7.7 \nThis, together with stepped up foreign \ncurrency mobilization, will allow the build up \nof reserves required to make the necessary \ninterventions in the market. \n \n \n \n158 \n \nSpecifics on the Capital Account \n \n7.8 \nAll Capital Account applications pertaining to \nthe receipt or payment of capital account \ntransfers and/or acquisition/disposal of non-\nfinancial assets, as well as transactions associated \nwith changes of ownership in the foreign \nfinancial assets of the country, shall continue to \nform the basis of specific applications to the \nExchange Control Review Committee. \n \n7.9 \nThe common cases to continue to be considered \nby the Exchange Control Review Committee, \nshall be as listed hereunder:- \n• Disinvestments \n• Cross border investments \n• Dilutions \n• Mergers and acquisitions, and \n• Restructuring and rights issues. \n \n \n159 \n \n7.10 All applications on income related transactions \nsuch as dividend, profit and capital appreciation \nproceeds remittances shall no longer require \nprior Exchange Control approval. \n \nExternal Loans Coordinating Committee (ELCC) \n \n7.11 In order to debug bureaucratic hurdles associated \nwith the processing of external loan applications \nfor \nboth \ndomestic \nand \nforeign \ninvestors, \nAuthorised Dealers shall now process loans of up \nto USD5 million without prior ELCC approval. \nAll loans above this threshold shall continue to be \nsubmitted to the Reserve Bank. \n \nManufacturing Sector \n \n7.12 Zimbabwe prides itself with a manufacturing \nsector that has state of the art equipment and \nmachinery which is currently lying idle largely \n \n160 \n \ndue to low capacity utilization resulting from \nshortage of foreign currency for the importation of \nraw materials. \n \n7.13 In spite of these low capacity utilization levels, \nthe sector has potential for revival to become the \nhighest contributor towards the country’s GDP \nand employment levels. \n \n7.14 The deregulation of Exchange Controls is \nexpected to create a conducive platform for the \nmanufacturing sector to regain its vibrancy. \n \n7.15 Manufacturing firms should leverage their idle \ncapacity and take it as a positive to the extent that \nthey can now buy and sell their products in \nforeign currency. \n \n7.16 Firms should take advantage of the deregulated \nenvironment to approach external financiers to \n \n161 \n \nsource lines of credit to rehabilitate their \nequipment and machinery. \n \n7.17 As a way of giving comfort to lenders, Monetary \nAuthorities shall allow firms to enter into onsite \nmanagement agreements with foreign lenders \nwithout seeking prior Exchange Control approval. \n \n7.18 Companies are therefore urged to engage their \noffshore partners in creative win-win structured \nfinancing \narrangements \nsuch \nas \nissuing \nredeemable shares which have attractive coupon \nrates. \n \n7.19 In addition, Manufacturing firms can still enter \ninto toll manufacturing arrangements as a way of \nutilizing idle capacity. \n \n7.20 \nThe Table below shows the gradual liberalization \nstrategy or the sequential approach to be adopted \nin the deregulation of current account transactions. \n \n162\nTABLE 1: The Gradual Liberalization Strategy – A Sequential Approach \n \nExchange Control \nTransaction Item \nCurrent Status \nNew Policy Measures \nImplementation Programme \nProcessing of Foreign \nPayments \nAll import payments \nare processed centrally \nat the Reserve Bank in \nterms of a Priority List \nfor Foreign Payments. \n \nWith immediate effect \ndecentralize the approval \nprocess \nfor \nall \napplications \nsubmitted \nthrough \nthe \nBatch \nApplication System. This \nmeans that Authorised \nDealers \nshall \neffect \npayments \nthrough \ncorporate FCAs and the \ninterbank \nmarket \npurchases \nwithout \nseeking prior Exchange \nControl approval. \n \nRemoval of the Priority \nList \n \nWith \nimmediate \neffect \nAuthorised Dealers to build \nadequate \ncapacity \nin \npreparation \nof \nthe \ndecentralization process. \n \nImplement process from 1 \nMarch 2009 for transaction \nlimits of up to USD1, 500,000. \n \nWith immediate effect, remove \nthe priority list for foreign \ncurrency payments. \n \nFrom 1 October 2009 remove \nlimits \non \ncurrent \naccount \ntransaction to be processed by \nAuthorised Dealers. \n \n \n163\nExchange Control \nTransaction Item \nCurrent Status \nNew Policy Measures \nImplementation Programme \n \nCorporate FCA \nretention \nand open market \ndisposal \nFor \nall \nexport \nproceeds, \nexporters \nare allowed to retain \nfor up to 90 days, 85 \n% in their FCAs for \nown use and 15% is \nsold as open market \ndisposal \nat \nthe \nprevailing \ninterbank \nmarket rate. \n \nUse of corporate FCA \nfunds requires prior \nExchange \nControl \napproval. \n \nTo \nachieve \n100% \nretention of all export \nproceeds by exporters \nand retention of FCA \nfunds for an indefinite \nperiod. \n \n \n \n \n \nTo allow exporters to \nutilize their FCA funds \nwithout seeking prior \nExchange \nControl \napproval. \nWith immediate effect, the \nopen market disposal shall be \nreduced from the current 15% \nto 7.5%. \n \nWith immediate effect, allow \nexporters to retain their FCA \nbalances \nfor \nan \nindefinite \nperiod. \n \n \n \n \n \n \nCash withdrawal from \nFCAs by exporters and \nForeign Exchange \nLicenced Shops \nExporters \nare \nnot \nallowed to withdraw \ncash from their FCAs.\n \nTo allow limitless cash \nwithdrawal from FCAs \nby exporters and Foreign \nExchange \nLicenced \nWith immediate effect, there \nshall be no withdrawal limits \non FCAs held by exporters and \nForeign Exchange Licenced \n \n164\nExchange Control \nTransaction Item \nCurrent Status \nNew Policy Measures \nImplementation Programme \nForeign \nexchange \nlicenced \nshops \nallowed to withdraw \nup to a maximum of \nUSD25, 000 a day \nfrom their FCAs. \nShops. \nShops. \n \nExporters shall also be allowed \nto withdraw any amounts of \ncash from their accounts for \nuse in the Foreign Exchange \nLicenced Shops or to fund their \ncash requirements for imports. \n \n \n \nIndividual FCA \nwithdrawals \nIndividuals; NGO’s, \nEmbassies, \nInternational \nOrganizations \nIndividual allowed a \nmaximum withdrawal \nof USD5 000 from \ntheir \nFCAs \nwithout \nseeking \nExchange \nControl approval. \n \nFor NGOs, \nInternational \norganizations and \nEmbassies, the daily \nTo remove withdrawal \nlimits on FCAs for \nIndividuals; NGO’s, \nEmbassies, International \nOrganizations \n \n \n \n \nWith immediate effect, \nremove withdrawal limits on \nFCAs for Individuals;NGO’s, \nEmbassies, International \nOrganizations \n \n \n165\nExchange Control \nTransaction Item \nCurrent Status \nNew Policy Measures \nImplementation Programme \nFCA cash withdrawal \nlimit is USD5000. \n \nRegistration of \nAgreements, \nProfessional; \nTechnical, \nManagement, Royalty \nAgreements \nThese require specific \napproval \nfor \nthe \nregistration \nof \nthe \ninitial \nagreement, \nrunning for a period of \none \nyear. \nBatch \napproval then required \nfor payments, which \namounts have limits. \nProfessional \n(USD500,000) \nTechnical \n(USD500,000) \nManagement (2% of \nturnover) \nRoyalty \n(5% \nof \nturnover) \n \n \nAuthorised \nDealers \nto \nprocess all agreements at \nbank level and register \nthese with Reserve Bank. \nWith \nimmediate \neffect \ndecentralize the processing of \nservice agreements by allowing \nbanks to process all submissions \nfrom companies. \n \nAuthorised Dealers shall be \nrequired to register processed \nagreements \nwith \nExchange \nControl prior to the activation of \npayments. \n \n166\nExchange Control \nTransaction Item \nCurrent Status \nNew Policy Measures \nImplementation Programme \nImport and Export of \nforeign currency cash \nThere is no limit on the \namount \nof \nforeign \ncurrency cash that can \nbe \nimported \non \na \nperson or in baggage, \nthe equivalent of which \ncan be exported if \ndeclared on entry as \nlong as one qualifies \ntheir expenditure. \n \nOn export of currency, \nindividuals are limited \nto \na \nmaximum \nof \nUSD5,000 \nand \nUSD25,000 for foreign \nexchange \nlicenced \nshops. \nTo \nfacilitate \nquick \nrestocking of shops and \nimportation \nof \nraw \nmaterials \nby \nshops, \nincrease the limit on cash \nthat can be exported with \nno questions asked to \nUSD250,000 by residents.\n \nTo allow individuals and \ncorporates to deposit into \ntheir FCAs or open new \nFCAs by depositing up to \nUSD 1,000,000.00 on a \nno questions asked basis. \n \n \nWith immediate effect, increase \nthe limit on cash that can be \nexported with no questions \nasked \nto \nUSD250,000 \nby \nresidents. \n \nWith \nimmediate \neffect, \nindividuals and corporates shall \nbe allowed to deposit up to \nUSD1000,000 cash into their \nFCAs with no questions asked. \n \n \n \n \n \n \nExports Approvals \nAll exports need to be \napproved by Reserve \nBank in the CEPECS \nsystem \nbefore \nDecentralization \nto \nAuthorized \nDealers \nof \napproving \nall \nexports. \nExchange Control will \nWith immediate effect Banks \nshall build adequate capacity to \nprepare their systems to the \npolicy changes. \n \n167\nExchange Control \nTransaction Item \nCurrent Status \nNew Policy Measures \nImplementation Programme \nexportation. \nonly retain viewer ship \nrights to the system. \nDecentralise \nthe \nForm \nCD\napproval process with effect from\nMarch 2009. \nExport of samples. \nExporters are required \nto seek prior Exchange \nControl \nauthority \nbefore raising Forms \nCD1 for export of \nsamples \nRemove the need for prior \nExchange \nControl \napproval. Exports to be \nmonitored \nthrough \nelectronic Forms CD1 \nBy 1 March 2009 \nExport of machinery \nfor \nrepair \nand \nreturn \nCompanies \nare \nrequired to first seek \nExchange \nControl \nauthority \nprior \nto \nraising Forms CD1. \nRemove the need for prior \nExchange \nControl \napproval. Exports to be \nmonitored \nthrough \nelectronic Forms CD1 \nBy 1 March 2009 \n90 \nday \nAcquittal \nPeriod \nof \nExport \nProceeds \nAll exports proceeds \nshould be repatriated \nwithin 90 days or any \nother \napproved \nperiod. \nTo completely remove \nthe restriction/ threshold \nMaintain Acquittal Period at 90 \ndays up to June 2009. \n \nIncrease acquittal period to 180 \ndays by July 2009 to allow \nexporters \nto \ncompete \neffectively \nwith \nregional \nexporters. \n \n \n168\n \nWE SHOULD NOT FEAR TO TRY NEW IDEAS… \n \n7.21 The current economic environment, where the \ntransacting public has been caught up in this \nforeign currency craze, there is need to reorient \nthe country’s trade and exchange systems in a \nmanner that will re-energise the market to attain \nincreased \nproduction \nand \nforeign \ncurrency \ngeneration. \n \n7.22 The gradual deregulation of Exchange Controls \nshall therefore, give the country’s productive \nsectors further impetus and this sequential \napproach is expected to have the following \npositive impact; \n \n(a) \nIncrease productive efficiency through quick \nturnarounds; \n(b) \nImprove investor confidence, \n \n169\n(c) \nActivate the overall inflows of foreign \nexchange \nand \nraw \nmaterials \ninto \nthe \neconomy; and \n(d) \nSmoothen the flow of trade which is \nconsistent with regional integration efforts. \n \n(e) \nReduces opportunities for money laundering \nactivities as there is ample time for authorities \nto put measures in place. \n \n(f) \nThe Extended Foreign Exchange Licenced \nShops Framework will complement the \nExchange Control Deregulation Programme \nthrough the unfettered flow of investment \ncapital and free funds to finance both \ndomestic \nproduction \nand \nconsumption \nexpenditure. \n \n7.23 We must, therefore, not fear to start new ideas no \nmatter how painful they may be to start with. Let \n \n170\nus encourage each other to stay the course of \nproductive innovation. \n \nREVOLUTIONISING AGRICULTURE \n \n7.24 \nOver the past 5 years, the Reserve Bank of Zimbabwe \nhas put in place and implemented various farmer-support \nprogrammes. \n \n7.25 \nThese encompassed the following four main areas: \n(a) Provision of agro-inputs, covering seeds, fertilizers and \nagro-chemicals; \n \n(b) Provision of agricultural equipment and implements, \nunder the Farm Mechanisation Programme; \n \n(c) Provision of cattle-breeding herd; and \n \n(d) Provision of subsidised working capital, as well as \ninfrastructural development finance for expansion of \noperations; \n \n \n171\n7.26 \nAs we chat the agenda for the future, guided and \nmotivated by the desire to promote food security in the \ncountry, it has become imperative that farming be \nrecognised as a legitimate entrepreneurial line of \nbusiness. \n \n7.27 \nConsistent with this, the following measures have are \nbeing introduced with immediate effect: \n \nAGRICULTURAL PRICING \n \n7.28 \nIn order to promote the viability of agricultural \noperations, farmers are allowed to market and sell their \nproduce in foreign exchange. \n \n7.29 \nAll pricing distortions in agricultural produce which \npreviously necessitated ad-hoc price top-ups have, \ntherefore, been removed and farmers can now receive \nimport parity prices (net of transport and other \nintervening charges relating to import costs). \n \n \n172\nTOBACCO AND COTTON \n \n7.30 \nConsistent with the spirit of making every inch of \nZimbabwe’s farmlands real export zones, tobacco and \ncotton farmers, who have traditionally not directly \nbenefited from the clear export nature of their produce, \nwill, with effect from this 2009 marketing season, be \npaid in foreign exchange. \n \n7.31 \nTobacco merchants and all registered cotton-buyers \nare, therefore, mandated to arrange lines of credit against \nwhich they will pay farmers competitive prices in foreign \nexchange. \n \nFCAs FOR FARMERS \n \n7.32 \nIt should be noted, however that all farmers, like any \nother exporter, will be expected to sell 7,5% of their \nforeign exchange to the Reserve Bank at the going \ncompetitive market determined exchange rate. \n \n7.33 \nEffectively, therefore, farmers too are entitled to hold \n92,5% of their foreign exchange earnings in FCAs which \n \n173\nthey can deploy to support their future production \nprogrammes. \n \nINTERNATIONAL FINANCING FOR AGRICULTURE \n \n7.34 \nLike any other business operation, agriculture is \namenable to smart partnerships between local land \nowners and regional and international technical and \nfinancial investors. \n \n7.35 \nAccordingly, therefore, we encourage farmers to enter \ninto strategic agreements or partnerships with foreign \ninvestors seeking to invest in the production of bio-fuels, \nhorticulture, tobacco and cotton, among several other \ncrops and animal husbandry lines. \n \n7.36 \nWe also urge seed houses and livestock breeders to \nenter into smart partnerships with farmers for their \nmutual benefit. \n \n \n174\nA CALL TO DEVELOPMENT PARTNERS \n \n7.37 \nAs Monetary Authorities, we call upon all willing \nDevelopment Partners to complement our internal efforts \naimed at promoting Food Security. \n \n7.38 \nThe complete removal of all distortions in the \nagricultural productivity chain has opened a new era \nwhere the majority of the people can be effectively \nempowered through food security. \n \n7.39 \nA robust agricultural sector is also the most effective \nway \nof \nbringing \nabout \nbroad-based \neconomic \nempowerment to the majority of the people, particularly \nthose in the rural communities. \n \n7.40 \nAchieving this would be a critical milestone in the \nachievement of the Millennium Development Goals \n(MDGs). \n \n \n175\nINFRASTRUCTURE DEVELOPMENT \n \n7.41 \n Farm capital development is an indispensable \nrequirement for the overall growth of productive \nefficiencies in our agricultural sector. \n \n7.42 \nTo this end, our farmers must strategically divide such \nprogrammes into short, medium and long-term, getting \nfinance from own savings, the private sector, commercial \nbanks and depend lesser and lesser on Government, \ngiven the high level of past support that has been given to \nthe farming community. \n \nWORKING CAPITAL FINANCE FOR FARMERS \n \n7.43 \nThe removal of marketing and pricing distortions in \nagriculture enables farmers to be able to stand on their \nown in terms of financing their operations. \n \n7.44 \nAccordingly, therefore, as the liberalised environment \ntakes effect, farmers are called upon to plough back their \nearnings into future production activities so as to enable \n \n176\nGovernment to now start concentrating on other needy \ndevelopmental areas. \n \n7.45 \nCompanies, commodity brokers and parastatals are \nencouraged to enter into firm production contracts with \nfarmers, thus, providing vital working capital finance to \nthis critical sector of the economy. \n \nROLE OF THE GRAIN MARKETING BOARD (GMB) \n \n7.46 \nStrictly speaking, the letter and spirit for the creation \nof the GMB was and remains Government’s desire to \npromote food security, particularly in respect of the \nbuilding up of strategic grain reserves to cater for the \nneeds of vulnerable groups in times of need. \n \n7.47 \nUnder the liberalised framework, and consistent with \nthe overall strategy of ensuring that our farmers are \nrunning viable operations, the GMB must act as the \nbuyer of last resort, providing farmers with a fall-back \nmarketing alternative. \n \n \n177\n7.48 \nFor the purpose of strategic reserves, the GMB should \nleverage on its own internally generated revenues, as \nwell as the limited financial resources as would be made \navailable from the fiscus. \n \n7.49 \nZimbabwe’s food security situation would remain \nprecarious if our farmers continue to face protracted \ndelays in getting their payments for deliveries made to \nthe GMB. \n \nZIMRA AND PARASTATAL FOREIGN CURRENCY \nACCOUNTS \n \n7.50 \nConsistent with Government’s thrust to optimise on \nthe productive deployment of scarce foreign exchange \nresources, it has become necessary that all foreign \nexchange inflows of Government be centralised. \n \n7.51 \nAccordingly, therefore, all Parastatals and ZIMRA \nhave been directed by Treasury to open FCAs at the \nCentral Bank and transfer all current FCA balances to the \nReserve Bank. \n \n \n178\n7.52 \nThis then means that all future foreign exchange \ninflows to these entities must, therefore, be fully \ntransferred to the Central Bank accounts in the name of \nthe individual parastatal or ZIMRA, as the case may be. \n \n7.53 \nAll banking institutions are hereby therefore advised \nand directed to comply with this requirement. \n \n7.54 \nAny Authorised Dealer found in violation of this \nrequirement will put their foreign currency trading \nlicence at risk. \n \nINSURANCE AND PENSION FUNDS \n \n7.55 \nIn order to ensure that the Insurance Industry and \nPension Funds continue to serve their intended purposes, \nit is imperative that they swiftly adapt to the changing \noperating environment. \n \n7.56 \nThe Reserve Bank stands ready to issue participants in \nthese sub-sectors with appropriate licences to conduct \ntheir businesses in foreign exchange, at the same time \nleaving room for those opting for local currency-based \n \n179\npolicies and pension schemes. The Minister of Finance \nwas clear in his pronouncements last week when he \naddressed this class of economic stakeholders. \n \nOTHER SUPPORT MEASURES \n \n7.57 \nEffectiveness of the above proposals lies in the \nimplementation by Government of the following \nrecommended support measures: \n \n(a) A resolution of the country’s political differences by \nswiftly implementing agreed negotiating positions. \n \n(b) Adoption of a robust fiscal management framework \nwhere Government tightens its screws on revenue \ncollection \nand \nexpenditure \ncontrol. \nThis \nshould \nencompass the mobilization of fiscal revenues in foreign \ncurrency. We are pleased as Monetary Authorities by the \ncommitments made to the Nation in the 2009 budget by \nthe Minister when he addressed ZIMRA issues. \n \n \n180\n(c) The adoption of results-based management across all line \nMinistries and Government Departments; \n \n(d) Establishment \nof \ncountrywide, \nadequately \nfunded \nEconomic Crimes Courts that would swiftly deal with all \neconomic crimes as they arise; \n \n(e) The passing out of stiff penalties and deterrent pieces of \nlegislation against economic crimes; \n \n(f) Launching of a National Investment Promotion Strategy, \nwithin the context of the “Zimbabwe International \nInvestment \nPromotion \nConvention”. \nThe \nmain \nobjective of this convention would be to expose to the \nworld Zimbabwe’s unique investment opportunities. \n \n(g) Implementation of a well managed Privatization and or \nJoint Venture Programme targeting our Parastatals. \n \n(h) Finalization of the ongoing Reviews to the Mining Sector \nLegislation; \n \n181\n(i) Adoption of a National Health and Education revival \nstrategy. \n \n(j) Re-configuration of the country’s water management \npolicy, leading to the dissolution of ZINWA and the \nreturn of water management to local authorities, in line \nwith the pronouncements in the 2009 Budget, and \n \n(k) Swift approval of all promising investment approaches \nacross all sectors of the economy. \n \n(l) Removal of price distortions in agricultural products, as \nwell as in all the other sectors of the economy; \n \n7.58 \nWe are pleased that all these key success factors were \naddressed in one form or another in the National Budget \nby the Minister and what is now required is speedy \nimplementation of the ideas and proposals so that the \nbenefits can begin to flow sooner rather than later. \n \n \n \n \n \n182\n8. \nA FOCUS ON THE VULNERABLE GROUPS \n \n8.1 Under \nconditions \nof \nrapid \nmacroeconomic \ntransformation, where inevitably society has to adapt \nto new ways of living, it is typically the case that \nvulnerable members of society, including women, \nchildren, the physically challenged, the old, the \npensioners, and those members of society with no \nmaterial means to earn themselves constant streams of \nincome, tend to be left out to irk a living out of \nunbearable hardships. \n \n8.2 \nIn order to ensure that the vulnerable members of \nsociety \nare \nable \nto \nsustain \nthemselves \nin \nthe \nmulticurrency environment, the Reserve Bank is \ndeepening its Rural Banking initiative, complemented \nthrough an integrated Micro-Finance Development \nframework under which SMEs and other self-help groups \nwill be able to access foreign exchange loans. \n \n \n183\n8.3 \nThe banking sector too will have a critical role to play \nthrough the enhancement of their internal SME financing \nportfolios. \n \n8.4 \nThe Banking Sector special foreign exchange loans \nwill cater for such value-creating activities as: \n \n• Agro-value-adding projects, such as oil expressing, \npeanut butter making; stock-feeds grinding; among \nseveral others; \n• Market gardening; \n• Metal fabrication; \n• Pottery; \n• Sculpture; \n• Candle making; \n• Exercise books making; \n• Brick making; \n• Soap making; \n• Scotch carts making and other welding jobs; \n• Carpentry; and \n• Other SMEs \n \n \n184\n8.5 \nEmpirical evidence from such countries as India, \nIndonesia, Brazil, Mexico and Chile, among several \nothers, clearly shows that SMEs are a viable and \nbankable sector which if carefully supported can turn out \nto be the engine of economic growth and development. \n \n8.6 \nIn a separate Supplement to this Policy Statement, \nmore detailed pieces of advice are given to help the \nvulnerable communities sail through the multi-currency \nenvironment. \n \n8.7 \nThe advise we give therein is also suitable to all those \ncurrently employed elsewhere who can start up value \ncreating \nprojects \nto \nearn \nforeign \nexchange \nfor \nthemselves. \n \n9. \nEXTERNAL DEBT DEVELOPMENTS \n \n9.1 \nThe country’s external debt stock stood at US$4.69 \nbillion as at 31 December 2008, representing a 1.8% \nincrease from US$4.61 billion recorded in December \n2007. \n \n185\n \n9.2 Changes in the country’s external debt stock largely \nreflect new debt contracted by the Government from \nChina to finance importation of agro-inputs, and the \ncapitalization of interest arrears. \n \n Structure of Zimbabwe’s External Debt \n9.3 Medium to long-term external debt continue to dominate \nthe external debt stock, accounting for 95.2% of the total. \nThe remaining 4.8% is short term debt. \n \n9.4 Of the country’s total external debt, 95.3% is owed by \nGovernment and parastatals while 4.7% is owed by the \nprivate sector. \n \n \n186\nExternal Debt by Debtor: 31 December 2008 \nGovernment\n76.9%\nPrivate Sector\n4.7%\nPublic \nEnterprises\n18.4%\n \n \n \n \nExternal Debt by Creditor Type \n \n9.5 About 44% of the country’s total debt is owed to \nmultilateral creditors, while bilateral and commercial \ncreditors are owed 50% and 6%, respectively. \n \n \n \n \n \n187\nExternal Debt by Creditor: 31 December 2008 \nCommercial\n6%\nMultilateral\n44%\nBilatera\n50%\n \n \n10. DOMESTIC DEBT DEVELOPMENTS \n \n10.1 The stock of Government domestic debt as at 31 \nDecember 2008 stood at $56.9 sextillion, a significant \nincrease from $390.5 million recorded in mid-August \n2008. \n \n10.2 The surge in the domestic debt position largely reflects \nthe increasing cost of financing Government expenditures, \n \n188\nnot matched by the corresponding increase in revenue \ninflows. \n \n10.3 The resultant funding gap was financed by recourse to \nthe domestic financial market. \n \nDomestic Debt Stock by Tenor \n \n10.4 The contribution of medium-term debt in the portfolio, \nwhich was about 63.5% at the beginning of 2008, is \neclipsed by 365-days treasury bills, which accounted for \n99.99% of the total Government debt portfolio by the end \nof December 2008. \n \n10.5 The increase in the proportion of 365 day Treasury bills \nhas concentrated the maturity profile of Government debt \nwithin a short space of time thereby exposing the portfolio \nto refinancing risk. \n \n10.6 The average duration of the portfolio is less than one \nyear, implying that Government rolls-over the whole \nportfolio annually. \n \n \n189\n10.7 Government is urged to issue long term instruments that \nhelp smoothen the maturity structure of its portfolio. \n \nDomestic debt by Holder \n \n10.8 The Monetary Banking Sector remained the major holder \nof Government domestic debt at 99% of total. \n \n10.9 Commercial banks accounted for about $424.04 \nquadrillion or 99.9% of the Monetary Banking Sector’s \nholding of domestic debt. \n \nGovernment Domestic Debt by Holder \n \n10.10 \nThe remaining 1% is accounted for by insurance \ncompanies, pension funds, other financial institutions and \nprivate investors. \n \n10.11 \nInsurance companies and Pension Funds hold an \ninsignificant proportion of Government debt portfolio \ndespite existence of specific regulations stipulating that \nthey hold at least 35% of their assets in prescribed assets. \n \n \n190\nCompliance with Prescribed Asset Ratios by \nInsurance and Pension Funds \n \n10.12 \nSection 18 (2) of the Pension and Provident Funds \nAct (Chapter 24:09) prescribes Insurance Companies and \nPension Funds to hold at all time at least 35% of their \nassets (valued at cost) in local registered securities, loans \nguaranteed by state or loans approved by a commissioner \nto a local authority. \n \n10.13 \nFor the period ending September 2008, Pension \nfunds and Insurance companies held an insignificant \nproportion (less than 0.0001%) of their assets in \nprescribed assets. \n \n10.14 \nAs Monetary Authorities, we are pleased that \nGovernment has, through the 2009 National Budget \nStatement laid a solid foundation for compliance in this \narea. \n \n10.15 \nThe collection of insurance premiums and pension \ncontributions in foreign exchange, supported by strict \ncompliance follow-ups will ensure that the Insurance and \n \n191\nPension Funds industries once again become catalysts for \neconomic growth and development. \n \n10.16 \nThe Reserve Bank will fully implement the Minister \nof Finance’s directive to issue appropriate foreign \nexchange denominated instruments for subscription by \nInsurance companies and Pension Funds as part of their \ncompliance with the prescribed holding requirements. \n \nOverdraft Facility \n \n10.17 \nDuring the review period, Government has \nmaintained a surplus position at the Reserve Bank of \nZimbabwe. \n \n \n \n192\nShort-term Trade Facilities \n \n10.18 \nOver the period January 2008 to mid-November \n2008, the External Loans Coordinating Committee \n(ELCC) approved short-term facilities amounting to \nUSD920.6 million. \n \n10.19 \nThis compares to a total of USD 1 460.5 million \napproved during the same period in 2007. \n \n10.20 \nFacility utilization remained low at 23% in 2008, \ncompared to utilization of 30% in 2007. The total \ncumulative draw downs for 2008 were USD201.8 million, \ncompared to USD 436.7 million for the same period in \n2007. \n \nUtilisation of ELCC Approved Facility as at Mid-\nNovember 2008 \n \n10.21 \nAlthough utilization of facilities continues to rise, \nthe level of utilization as a proportion of approved \nfacilities remains low largely due to further assessments \n \n193\nby lenders as well as the sanctions imposed on the \ncountry. \n \n11. CONCLUSION \n \n11.1 Given the foregoing, and as I have already intimated, I \nstrongly believe that 2009 is the year which should mark \nthe turning point for our country. The unspoken voices of \nZimbabweans across the political spectrum, social strata \nand all walks of life are sending a clear message that \nenough is enough. The time has come for something to \nnow give so as to create the conditions for the \namelioration of the battered livelihoods of the people. \n \n11.2 Going forward, I believe that whatever we do should be \npremised on three fundamental values that have been \nconspicuously and sadly lacking particularly on the part \nof our national leadership across the board be it in \npolitics, business or social circles. These are the values \nof hard work, honesty and sacrifice. \n \n \n11.3 The time has come for all of us as Zimbabweans, \nespecially for those with influence and relative \n \n194\neconomic means, to understand that extraordinary \ncircumstances such as the ones we face in our country \ncannot be overcome without sacrifice. \n \n11.4 Despite the fact that Zimbabweans have had to endure \nbiting economic sanctions and indeed despite the \nwidespread political challenges and economic hardships \nfacing the country, it is very disappointing that the one \nfundamental value that is necessary to overcome such \nstrains is missing and that is sacrifice. \n \n11.5 There is an irony here given that our country’s protracted \nand bitter struggle for independence was won through \nsacrifice. Tens of thousands of our sons and daughters \nsacrificed not just for the freedoms we enjoy today but \nalso for many other things big and small that we take for \ngranted today. \n \n11.6 It is sad to see that the legacy of sacrifice for our country, \nthat is the tradition of putting Zimbabwe First which \nwas trail-blazed by our freedom fighters, has itself been \nsacrificed on the altars of personal ambition, greed, \n \n195\ncorruption \nand \nwanton \nirresponsibility \nwithout \nresponsibility. \n \n11.7 When times are as hard for our Nation, as they indeed \nhave been, it is even harder to get out of the bind unless \nall of us are prepared to sacrifice for our country. The \nprevailing casino notion that people can get \nsomething for nothing is utterly reprehensible in the \nextreme. \n \n11.8 Where the spirit of sacrifice is absent, dishonesty \nabounds. \n \n11.9 Indeed, vices that are rampant in our country today such \nas greed, corruption and incompetence feed on \ndishonesty which is the driver of institutional and policy \nfailure. \n \n11.10 \nOne of the reasons we have people in authority \nacross the board who have not been living up to the \nresponsibility of their offices be they in the public, \nparastatals or private sectors of our economy, and who \ninstead have been playing the blame game without \n \n196\naccepting responsibility at every opportunity, is because \nof dishonesty. \n \n11.11 \nI have no doubt that we will not be able to rebuild \nour economy and indeed our country unless we once \nagain restore the culture of honesty in our country’s \npublic affairs. \n \n11.12 \nAlthough this might not sound palatable to some, \nthe simple fact is that there’s just too much dishonesty \nout there, especially in positions of authority in \nGovernment, business and politics. It is not possible to \nturnaround an economy in an environment in which \ndishonesty is the order of the day. \n \n11.13 \nIf those of us with public responsibilities could care \nto listen to the voices of the suffering Zimbabweans, we \nwould hear unmistakable and very genuine cries for hard \nwork and honesty. \n \n \n \n11.14 \nWhere there is no spirit of sacrifice and where there \nis no culture of hard work and honesty, as is the case in \nour country today, you are guaranteed to find generalised \n \n197\nlaziness which has indeed taken root in our country \nwhere people who should know better expect to get \nsomething for nothing through schemes like the “burning \nof money” and other forms of corruption. \n \n11.15 \nThe time has come for Zimbabweans to expect and \nto demand hard work from those in public offices \nwhether in Government, business, politics, civil society \nor churches. In that connection, we should all remember \nthat hard work is about deeds and not words. The \nsuffering masses have heard a lot high sounding words, \nespecially from politicians, but they have seen no action \non the ground as the situation in the country has \nprogressively gotten worse with few if any taking \nresponsibility for it. \n \n11.16 \nGiven the opportunity that we now have to finally \nturnaround our economy this year, the policy measures I \nhave unveiled in this Monetary Policy Statement are the \nReserve Bank’s instalment into what I hope will be a \nNational Initiative to instil, promote and entrench the \ncritically needed values of sacrifice, honesty and hard \nwork among public officials and in public institutions \n \n198\nacross the full spectrum of our society, industry and \ngovernment. \n \n11.17 \nIn this regard, as Monetary Authorities, we call \nupon other stakeholders, particularly all political parties \nto elevate their engagements from partisan considerations \ninto being more national in perspective in the interest of \nmoving the country forward. \n \n11.18 \nThe stalemate the country has endured for nearly a \nyear now has not done Zimbabwe any good at all. \nInstead, it has sapped our collective energies, weakened \nour spirits and demoralised our hearts. \n \n11.19 \nWithout the right political context, one that is \nmarked by active discourse and discussions on \nproductive and developmental issues, in other words \nwithout a political context defined by sacrifice, honesty \nand hard work, no singular efforts by one or a few \ninstitutions or individuals will be able to overcome the \nsystemic financial and economic threats facing our \ncountry today. \n \n \n199\n \n11.20 \nThe tragedy is unfortunately that in the midst of the \nconfusion and general apprehensions caused by the \npolitical uncertainties, self-doubt and the fear to take \ndecisions exposes those trying and willing to make a \npositive difference through decisiveness to misplaced \nvilification as has happened in the past on occasions too \nmany to mention. \n \n11.21 \nThis fact notwithstanding, I am proud to say the \nReserve Bank will continue to play its part in not only \ncontributing to the search for lasting policy measures for \nour national economy but also in putting out any \neconomic fires that threaten to destroy our country, \nexposing and holding to account any economic or \nfinancial arsonist caught in action. \n \n11.22 \nIn the end, as the end will surely come when it is \ntime, my team and I know fully well that the spirit of the \ncountry we call Zimbabwe will, when all our troubles are \ngone, as gone they shall, acknowledge to many not yet \naround, that my team and I were right there in action \ndefending and supporting her at her hour of maximum \n \n200\ndanger when it was easier to give up than be the pillar of \nsupport and therefore attack, that my team and I, from \nthe sweeper to the Board, were there besides her, at her \nhour of greatest need. That is the only acknowledgement \nwe look forward to, long after we are gone. \n \nTherefore, please join me in… \n11.23 \nLaying this Monetary Policy Statement before God \nand through him, I ask that the Nation be inspired into \npositive action for we don’t have much time to waste on \ntrivialities and personality differences. We are all \nZimbabweans with one common destiny. \n \nI thank you. \n \n \n \n \nDR. G. GONO \nGOVERNOR \nJanuary 2009", "source": "RBZ", "stratum": "cb_requests", "fetch_date": "2026-05-11", "url": "file:///RBZ/Monetary_Policy_Statements/mpsjan2009Zim.pdf"}
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