HARARE, August 2 (The Source) – Zimbabwe’s central bank says it will print additional bond notes worth $300 million in an effort to ease biting cash shortages, stoking fears that the country could return to the era of money printing and hyperinflation.
Governor John Mangudya said the bond notes would be backed by another facility from the African Export-Import Bank (Afreximbank). The continental bank would have backed Zimbabwe’s rollout of the surrogate currency to the tune of $550 million, after a $50 million facility for bond coins in 2014 and $200 million for the initial bond note release last November.
The bond note is not fungible outside Zimbabwe, and trades at par with the United States dollar, worsening capital flight and shortages of foreign currency.
Despite that initial rollout, Zimbabwe remains in the throes of an acute banknote shortage, with bank queues now a permanent feature.
Presenting the Monetary Policy Statement on Wednesday, Mangudya said the export incentive scheme had been successful in increasing imports by 14 percent.
“Between May last year and June this year the country has generated $4,9 billion in foreign currency receipts,” he said.
“Building on the success on the export incentive scheme in securing exports of goods and services and diaspora remittances, the bank found it imperative to increase the scheme by a further $300 million dollars under a standby liquidity support facility which is being finalized by the Afreximbank.”
Plans to increase the bond notes in circulation have received stiff resistance from citizens who fear the return of the Zimbabwe dollar but Mangudya maintained that the country was not ready for a return of the currency.
Zimbabwe abandoned its currency at the height of hyperinflation in 2009 and adopted a basket of multi currencies which include the US dollar Rand, Pula and Pound.
Mangudya added that bank was also negotiating for a $600 million nostro stabilization facility from Afreximbank to manage the cyclical nature of Zimbabwe’s foreign currency receipts.
“The fund will be available at the end of the tobacco selling season in August,” he said.
The central bank will also establish a $5 million ring fenced fund to facilitate repatriation of dividends by foreign investors. As at June the country had a backlog of $75 million in dividends and proceeds from sales that are owed to foreign investors.
“The bank has noticed that repatriation of foreign exchange for securities related transaction is taking a long time despite such transactions being in the first category of the priority list of foreign currency allocation,” said Mangudya
“So we are setting up this fund to promote the integrity of the stock market, to stimulate trading and demonstrate that Zimbabwe is ready for business. All incoming and outgoing portfolio funds will be pooled in this fund.”
The fund will be operational in September
To cultivate a savings culture Mangudya said the bank would introduce a no frills tax free Savings Bond which will attract an interest rate of 7 percent per annum.