Zimbabwe Won’t Be ‘Fishing Pond’ for Dollars, Chinamasa Says

  • Foreign currency earnings to be used only for vital imports
  • Economic growth forecast for 2016 cut due to drought

Zimbabwe will introduce bond notes and restrict the spending of foreign currency to vital commodities to limit dollars leaving the country and exacerbating the nation’s cash crunch, according to Finance Minister Patrick Chinamasa.

“We believe the introduction of the bond notes will help stop the country from being a fishing pond for the U.S. dollar,” Chinamasa said in an interview Wednesday at the African Development Bank’s annual meetings in Zambia’s capital, Lusaka. “A lot of companies, so-called investors, come to fish out our U.S. dollar resources and that is what is producing the shortage.”

Zimbabwe, which abandoned its own currency in 2009 because of hyperinflation, trades mainly in U.S. dollars, while the rand, euro, Botswana pula, yen, yuan and Indian rupee are also legal tender. The central bank limited cash withdrawals from ATMs earlier this month as the country’s ailing economy caused dollar supplies to evaporate, and started a program to explain introduction of bond notes, which will be worth their exact counterparts in U.S. dollars as currency.

The Reserve Bank of Zimbabwe has introduced measures to manage “the foreign currency earnings that we earn as a country and make sure that money is used not to import trinkets but is used to import very vital commodities,” Chinamasa said. “We have produced a priority list which will be used by the bank to guide them on what items they can use foreign currency to import.”

The shortage highlights the struggle President Robert Mugabe’s government faces in resuscitating an economy that is half the size it was 15 years ago, according to government estimates, with about 90 percent of the population out of formal employment. Authorities abandoned an earlier plan to convert half of their export earnings into South African rand and euros and said it will now require 50 percent of those earnings to be transferred to a Reserve Bank of Zimbabwe account.

Zimbabwe’s economic growth forecast for 2016 has been cut to between 1.1 percent and 1.5 percent this year, from 2.7 percent earlier, as the region’s worst drought in decades led to increased expenditure and lower farming output, Chinamasa said. Gross domestic product expanded an estimated 1.1 percent last year, according to the International Monetary Fund.

The Washington-based lender said earlier this month the southern African nation must repay money it owes to the IMF, World Bank and African Development Bank before receiving a new IMF loan. Chinamasa said Zimbabwe can borrow money as long as it is clear about the purpose of the loan.

“We have a policy that any new loans should not go towards consumption, but towards putting up infrastructure,” he said. “We have said that the loan we borrow must create an asset infrastructure that is able to generate cash flows in order to service the loan.”

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