Zimbabwe Borrows Offshore to Finance Inter-Bank Market

The Reserve Bank of Zimbabwe has ended a 1:1 exchange rate facility to fuel suppliers after borrowing a staggering U.S $500 Million offshore.

Reserve Bank of Zimbabwe Governor, Dr John Mangudya.

Harare: The Reserve Bank of Zimbabwe has announced that oil suppliers will now have to source foreign currency through the inter-bank foreign exchange market which has been oiled by a U.S $500 Million injection.

The central bank has secured an offshore line of credit to the tune of U.S $500 Million to supplement the country’s foreign exchange receipts in order to underpin the inter-bank foreign exchange framework.

The loan (whose terms and conditions remain a secret) is a four-year facility obtained from the African Export-Import Bank and uses platinum production as collateral, a person familiar with the details of the agreement told Bloomberg.

“Government through the RBZ is drawing down U.S$500 million on Monday, 20 May 2019, to supply the inter-bank forex market to meet the forex payment requirements of business and individuals,” Reserve Bank Governor John Mangudya said.

The RBZ advised that “the 1:1 exchange that was being used by the OMC’s for the procurement of fuel will be discontinued with immediate effect.”

“The new position is necessary to promote the efficient use of foreign exchange and to minimise and guard against incidences of arbitrage within the economy”, RBZ said in a statement.

Economists have blasted the move by the central bank to finance the inter-bank market using borrowed funds as that will pause a burden to tax payers in future. The money will be accessed by a few companies and privileged individuals.

“The U.S $500 Million is going to vanish into the black market and most of it will be externalized back to where it came from,” Dr Tapiwa Mashakada, a former cabinet minister has warned.

“You may recall that I warned the Reserve Bank that the inter-bank market rate has settled below the market equilibrium hence the arbitrage will continue until market forces determine the market rate,” Dr Mashakada added.

The central bank has already advised banks to ”effectively apply the willing-seller willing-buyer principle to ensure that the inter-bank foreign exchange is reflective market conditions.”