Zimbabwe Bank has lifted a loan ban that has stalled the economy

Zimbabwe Bank has lifted a 10-day ban on loans because critics have warned that the government has already broken confidence in a stagnant economy.

Although the ban was announced by President Emerson Manangagwa in a bid to stem the devaluation of the Zimbabwean dollar, it quickly cooled economic activity, with agro-processing companies, including sugar mills, saying they could not raise funds for farmers to grow crops. This led to a gradual relaxation, with the government first stating that it did not apply to goods and then allowing citizens to import their own goods with access to foreign currency.

On Tuesday, Reserve Bank of Zimbabwe Governor John Mangudia announced that lifting the measure had little effect on the exchange rate. Instead, it has allowed the government to be the scapegoat for the collapse of the private sector, pushing inflation down to 96%. The Zimbabwean dollar is trading as low as 420 against the greenback on the black market, at its level before the measure was announced. The official rate against the dollar is 173, down from 166. This compares favorably to that of a pioneer peg in the U.S. unit in February 2019. A new interbank rate, currently at 285, has also been established.

Shelton Sibanda, chief investment officer at Imara Asset Management in the capital Harare, said: “The main issue has always been the real money created by the government and the Reserve Bank of Zimbabwe, which they can do without limits – hence inflation.”

Gambling, speculation

Holders of the Zimbabwean dollar almost immediately leaned towards the black market with little faith in the value, chasing more than the local currency.

Nevertheless, authorities say that private companies are borrowing money to speculate in the money market and have decided to temporarily stop lending.

“What we saw was significant borrowing,” said Persistence Guyania, a member of the central bank’s monetary policy committee, in an interview. “Loans are mainly directed towards the auction system, the parallel market and the stock exchange, its gambling and speculation.”

Mangudya said some companies are under investigation by the authorities and they will not be able to borrow money. He did not identify them in a statement.

Fanuel Mutoko, chief executive of the Zimbabwe Bankers’ Association, did not immediately respond to a call on his mobile phone seeking comment.

The Confederation of Zimbabwe Industries, the largest industry body, said the lifting of the moratorium was welcome. “The pain that has been going on for the past week has been unnecessary,” said Kurai Matsheja, president of the association. “We’re glad they realized it and worked on it.”

Even so, with next year’s election and a collapsing economy, more irregularities could be expected, said Batanai Matsika, head of research at Harare Morgan & Co.

“A lot of firefighting measures will be announced as we move towards the election,” he said. “There will be a lot of trials and errors as they will try to come up with measures at the exchange rate.”

© 2022 Bloomberg

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