Mnangagwa Zig plans to shake up banks – ZimEye

By Business Reporter – Zimbabwean President Emmerson Mnangagwa recently said he plans to make Zimbabwe Gold (ZiG) the country’s sole legal tender by 2030, a move that has shaken the banking sector.

Banks have taken a more cautious approach to long-term lending since Mnangagwa made the comments earlier this month.

In October last year, the government published Statutory Instrument (SI) No. 218 of 2023, extending Zimbabwe’s multi-currency system until December 2030.

But in a speech at the commissioning of a juice and water processing plant at Mutare Teachers College on July 4, 2024, President Mnangagwa hinted that the dollarisation process could be over within two years if Zimbabwe’s government remained stable.

A local private weekly quoted an unnamed industrialist as saying that Mnangagwa’s comments have made banks take a cautious approach, trying to determine whether the president’s remarks are a policy statement or just political rhetoric. The industrialist said:

There was a political statement in it, there was a policy statement in it; what I heard was that it was a political statement.

I think what the President meant was that the 2030 goal might be achieved earlier than expected, not necessarily that it will happen.

What banks have been trying to do is determine what happens next.

So, they didn’t go to anybody and say we’re not lending, but they didn’t do anything. They were waiting for clarity; they were trying to understand whether it was a policy or a political statement and to build some level of comfort before continuing to make long-term loans.

It would be harmless to keep the local currency stable until 2030 in a multi-currency environment.

What should be troubling to the authorities is that the US dollar is beginning to destabilize the Zimbabwean dollar.

One senior business leader said many companies have long struggled to get loans.

As for the President’s talk of de-dollarisation by 2028, in my view this must be seen in the context of the government’s clearly articulated and publicised plan to end the country’s reliance on the US dollar and establish the Zimbabwe dollar as the sole locally traded currency.

We therefore remain guided by Statutory Instrument 218 of 2023, whilst recognising that the Government’s aim is to achieve single currency status by 31 December 2030.

The challenge of obtaining long-term funding cannot be attributed entirely to the president’s speech. Access to funding, especially long-term funding, has been a long-standing problem.

Factors that can help address this challenge include policy coherence and predictability.

Therefore, the policy-compliant announcement is not expected to cause a serious market shock.

In November 2023, the Minister of Finance, Economic Development and Investment Promotion, Mthuli Ncube, said the government’s decision to enact SI 218 of 2023 was due to banks’ refusal to provide loans in Zimbabwean and US dollars. Ncube said at the time:

We are moving towards a single currency, we have to be clear about that, but we want order. So the extension to 2030 is to create order and calm in the market.

-independent

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