Zimbabwe’s banks will meet with authorities on to clarify President Emmerson Mnangagwa’s decision to freeze lending, which he blamed for causing the currency crisis.
In a televised address on Saturday, Mnangagwa implemented capital controls and instructed banks to cease loans to the government and the commercial sector with immediate effect. It’s unclear whether the order covers individuals.
The directive aims to reduce the generation of money “that is prone to abuse for the goal of manipulating the exchange rate for financial advantage,” according to the president, who also stated that bank loans will be scrutinised.
The directive aims to reduce the generation of money “that is prone to abuse for the goal of manipulating the exchange rate for financial advantage,” according to the president, who also stated that bank loans will be scrutinised.
The Bankers Association of Zimbabwe’s chief executive officer, Anuel Mutoko, confirmed the discussion with the Reserve Bank. “Given the announcement came out over the weekend, it’s impossible to determine what the impact of the order will be,” he said by phone from Harare, Zimbabwe’s capital, on Monday.
The measure is intended to maintain the currency amid a growing threat of the economy “dollarizing” for the second time since 2009, when hyperinflation forced the country to abandon its own currency in favor of the US dollar. The value of the Zimbabwean dollar has dropped by half this year, making it Africa’s worst-performing currency.
On the parallel market, multiple exchange rates of at least 350 to 420 per US dollar are easily accessible. The official rate was 276 per dollar on Monday, up from 165.99 previous week, according to the central bank’s website. A weekly auction is frequently used to determine the rate.
An lengthy lending prohibition could exacerbate the country’s economic problems and result in job losses. Policymakers are battling to keep inflation under control, having upped the central bank’s benchmark rate to 80% in the face of rising inflation, which hit 96.4 percent in April.
“No economy would survive without lending from banks,” said Prosper Chitambara, senior researcher and economist at Labour and Economic Development Research Institute of Zimbabwe, a Harare-based economic think-tank.
According to the central bank’s data, the country’s 19 banks in the financial services industry collectively loaned Z$229.94 billion ($1.39 billion) last year. Units of Johannesburg-based Nedbank Group Ltd. and Standard Bank Group Ltd., as well as Togo-based Ecobank, are among the international lenders operating in the country.
The banking industry lent 76 percent to the productive sector and 20 percent to the consumer sector. The agricultural, manufacturing, and distribution sectors received the majority of bank loans, according to a February announcement from the central bank.
News Central earlier reported that Zimbabwe’s government has ordered banks to halt lending with immediate effect in an effort to halt speculation against the Zimbabwean dollar, which is part of a slew of steps aimed at halting the currency’s fast depreciation on the black market.
After being struck by hyperinflation in 2009, the southern African country revived a native currency in 2019.