Panic withdrawals have gripped the banking sector as depositors take away their money amid scepticism over the government’s intentions to introduce bond notes in two months’ time.
NEWS IN DEPTH BY VICTORIA MTOMBA & KENNEDY NYAVAYA
A survey by The Standard yesterday showed that a number of banks in Harare’s central business district had long queues with others running out of cash by mid-day.
Depositors said the demand for cash was caused by the loss of confidence in the banking sector fuelled by the pending introduction of the bond notes, which Reserve Bank of Zimbabwe (RBZ) governor John Mangudya said would not happen within two months.
“This is very painful my brother. I really want my money because I worked for it, I cannot trust these banks, but I am also stranded while on this queue,” said a man who only identified himself as Tawanda.
Justin Mangwende who rushed from his Bindura base as a result of the crisis, only to meet the same in the capital, said he had lost confidence in the banking sector.
“In this kind of situation, no one can trust another with money, including the banks, so the situation will only become worse because what kind of central bank brings money we cannot trust?
“I cannot be sure I am going to get the same value I deserve because banks will start giving bond notes, so I would rather keep my own money because no one can invest in worthless bond notes,” he said.
Last week, Mangudya introduced a raft of measures to stem the cash crisis, such as capping withdrawals at $1 000 per day, putting a priority list for imports and introducing the bond notes, among others.
Mangudya said the bank was introducing the $200 million backed foreign exchange and export incentive facility, which is supported by the African Export Import Bank.
The facility is meant to provide an incentive facility of 5% on all foreign exchange receipts, including tobacco and gold sales proceeds.
He said in order to mitigate against possible abuse of the facility through capital flight, “the facility shall be granted to qualifying foreign exchange earners in bond coins and notes which shall continue to operate alongside other currencies and at par to the dollar”.
He said the Zimbabwe bond notes in denominations of $2, $5, $10 and $20 would be introduced in the future as an extension of the current bond coins introduced in 2014.
Banking sources told The Standard that the demand for cash had been high since Mangudya’s announcement on Wednesday as depositors moved to empty their accounts for fear of the bond notes, which RBZ said would not come within two months, highlighting the low confidence in the financial sector — the nerve centre of the economy.
A number of pensioners who normally allow their payouts to accumulate for them to withdraw a large amount at once could be seen in the banking halls, while queues at Automated Teller Machines (ATMs) were still visible as late as 9pm on Friday.
“Some of our clients who had invested $150 000 visited us saying they want to take all their money out as they cannot keep it with us.
“This afternoon [Friday] we met another client who wants to take out his cash as well.
“The announcement has resulted in panic withdrawals; we feel the governor has to make a retraction on the bond notes as it has done more harm than good,” said an executive with an asset management firm.
The situation was the same at auction floors as farmers were restricted to $1 000 as maximum withdrawal limit.
“They told me I could only get $1 000 from my account but I want all of it by Monday morning because I have to buy certain stuff and cannot let my money be idle in the bank,” said Kakonyo from Karoi who has been at the Tobacco Sales Floor for over a week.
Another farmer Givemore Kamufungu from Bindura said he would rather keep his own savings at home than wake up to an account full of bond notes.
“When I get the chance to withdraw money, I will make sure I do not leave anything because they want to take our money and give us theirs which has no value,” he said, imploring government to give others a chance to govern if they had failed.
The panic withdrawals come as experts warned that the measures announced by RBZ had serious ramifications on exporters and would not address the cash crisis facing the economy.
Buy Zimbabwe said the economy was facing cash shortages and not cash allocations ripping into Mangudya’s measures of limiting withdrawals, import priority list and use of plastic money.
“This is evidently moderating a crisis and prone to transposition,” it said.
Confederation of Zimbabwe Industries president Busisa Moyo said while the intention for introducing bond notes was meant to curb illicit outflows of inventory and cash from Zimbabwe and allow more retention for critical imports and activities, the public had an issue of confidence and lack of trust which required much re-assurance.
“It would have been better to increase the volume of bond coins and raise denominations gradually to say $10. The word ‘note’ is a psychological barrier and creates a chilling memory of ‘agro bills’ and bearer’s cheques which have left economic ‘scars’ in the minds of Zimbabweans. This can be packaged better for acceptance and ‘buy-in’,” he said.
Moyo said the other way would have been to narrow the bond notes to a sector like the fuel industry which is one of the largest importers and people would pay in bond notes like what used to be done for fuel coupons.
He said then the bond notes would be distributed to other sectors and there would be a migration and buy-in.
“We must get away from a culture of overreacting and dropping bombshells. They create panic and unintended consequences,” he said.
Mangudya’s measures also include the liquidation of part of export proceeds into South Africa rand and euro to promote the widespread usage of currencies in the multi-currency basket.
With effect from Friday, 40% of all new dollar export receipts from the exports of goods and services, including tobacco and gold were converted by RBZ into South African rand and 10% to euros.
Mangudya said the objective of bond notes was to fund the 5% export incentive scheme in a sustainable manner that mitigates against capital flight.
“This means that without the bond notes, there would be no export incentive facility. Without the export incentive scheme, there would be no bond notes. We cannot have one without the other.
They are intertwined. This therefore means that there is a perfect self-checking mechanism under this scheme which is meant to enhance local production and exports that are turn vital to sustain the multicurrency system and to stabilise and stimulate our beloved economy,” he said.
“The 5% export incentive is credited to the exporter’s USD account upon receipt of export proceeds. On the basis of advice of receipt of export proceeds by the exporter’s bank, RBZ would proceed to fund the 5% incentive by crediting the bond notes into the exporter’s bank.”
The RBZ boss said the bond notes would circulate within the economy at par with the United States dollar just like bond coins and would be fully secured or backed by the $200 million facility from Afreximbank.
He said the conversion of dollar exports receipts into South African rand was stemming from the fact that 60% of Zimbabwe’s imports were coming from South Africa and 50% of Zimbabwe exports were going to South Africa, yet shops in Zimbabwe sell the commodities from South Africa in dollars.
But Moyo said industry was not ready to have 40% of its exports converted into rand as it should have been allowed to own choices after making assessments of which currency to store their hard-earned value.
He said Mangudya had in 2014 said players and consumers should be “free to choose” from a currency basket.
“The rand is very volatile and could crash after conversion in the hands of the exporter or banking customer.
“This will disincentivise formal banking, exports will decline for fear or increased currency risk, corruption will rise to wrecking heights and transfer and currency barons will spawn and make structured economic activity and taxation difficult, if not impossible,” he warned.
Moyo said exporters should be given royal treatment as the import bill was the country’s biggest economic problem after the lack of balance of payment support.
“As CZI, we warned three years ago that deep economic problems would emerge if this was not dealt with.
“Restrict imports, incentivise exports and buy locally-made products, this was what we were seeing then,” he said.
Buy Zimbabwe said the compulsory conversion of foreign exchange earnings to a more volatile currency like the rand was tantamount to adding an exchange rate risk to exporters.
“This is likely to exacerbate the plight of our primary exporters who are already suffering from deteriorating commodity prices,” it said in an analysis of Mangudya’s measures.
But local economist Brains Muchemwa said there was little doubt that the bond notes “will alleviate the cash crisis, more so, considering that there won’t be external demand for these notes”.
He said circulation would remain within the borders of Zimbabwe, which would satisfy, to some extent, the demand for local transactional currency.
Buy Zimbabwe said given that Zimbabwe was a net importer, it therefore meant there was going to be continued pressure on the demand for the dollar.
“This is likely to create a black market for US dollars, further exacerbating the country’s competitiveness,” the body said.
Muchemwa said the creation of the black market for foreign exchange would largely depend on the extent to which the continued supply of the bond notes would outstrip the average stock of the US$ and other stable currencies in circulation.
Buy Zimbabwe said the country was suffering from a competitiveness challenge principally driven by a confidence deficit overhang.
The confidence deficit overhang, it said, had deterred meaningful foreign direct investment inflow into the economy.
It said this had also resulted in Zimbabwe being regarded as a high risk country, hence the high premium on the cost of money.
“Given this, one can thus conclude that, Zimbabwe’s problem is not of a monetary policy nature and as such, there is little or zero scope for monetary manoeuvres to deal with the underlying challenges affecting our economy.
“As such, tinkering with money is not a panacea to our challenges, but rather a technical delay to the obvious collapse of the economy,” it said.
Muchemwa said the multi-currency regime should exist and no currency should be given special treatment, when asked if it was ripe for Zimbabwe to discard the multi-currency regime and opt for the South African rand.
“The multiple currency regime and not the rand is the best solution at the moment considering that the latter has been quite unstable lately and therefore, it should compete for relevance and acceptance like any other currency without getting special preference,” he said.