Foreign loans cushions forex receipts

Zimbabwe’s foreign currency earnings for 2019 have so far underperformed relative to last year, the latest central bank data show.

According to data slides shared by the Governor of the Reserve Bank at the ongoing Parliamentary Prebudget Seminar in the resort town of Victoria Falls, foreign receipts as at September stood at $5.4 billion which was 9% below the same period last year.

A deeper dive into the numbers, however, reveals that the margin of loss at -9% as at September was an improvement to the mid-year variance of -25%. This means foreign currency receipts for the first 6 months period of the year were 25% lower than that achieved in the same period last year.

The narrower gap as at September is a result of improved credit lines, which rose to $1.55 billion from a total of $207 million as at June.

The growth in lines of credit in the third quarter period helped drive the quarterly total receipts to a level above the total achieved in the first 6 months of the year.

Exports which are the key driver of foreign receipts typically accounting for 65% of total receipts have been underperforming so far in the year. Although tobacco surpasses its set targets the quality of leaf has worsened while global demand has eased thus pushing prices lower and consequently the net forex proceeds. Tobacco is the second top export product for Zimbabwe.

Gold which is the top export driver has seen a sharp decline in production with and consequent dearth in export receipts. As at half year the mineral was 20% lower than last year in terms of volumes delivered to Fidelity Printers. This disruption in gold is attributed to monetary changes effected earlier in the year.. in recent months, the metal has however picked up. This trend is observed across a number of minerals.

Another key line, remittances, has been coming off, driven by macroeconomic volatility and changes in monetary policy which have increased uncertainty on FCAs and similar flows.

Foreign direct investment contribution has remained insignificant despite a recent surge as the country struggles to attract capital due to a weak economic and political environment plus high country risk.

Following the reintroduction of the Zimdollar earlier in the year, most banks have been cautious in their search for foreign loans. The change in currency has reduced the allure of foreign loans due to playability challenges on the part of end loan seekers.

Banks have thus scaled down on foreign loans. Only the government has maintained a high appetite for foreign loans in its bid to stabilize the interbank market as well as finance other projects. Despite the cushion, loans which are supposed to be paid back with interest, are not seen as a sustainable way of spurring forex receipts.

Respect Gwenzi

Respect is the Lead Analyst and Managing Director at Equity Axis. He has 8 years experience in respective fields of finance and media. Particular areas of expertise include Asset Management, Stockbroking and Financial Media. Respect is on a mission to change the course of Financial Media in Africa through digitalization

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