Covid-19 to clog Zimbabwe’s forex inflows

14 Apr, 2020 - 13:04 0 Views
Covid-19 to clog Zimbabwe’s forex inflows Dr Mangudya

eBusiness Weekly

Tawanda Musarurwa
Zimbabwe has over the years found it difficult to boost foreign currency inflows due to numerous factors – not least the economic sanctions and an underperforming industry –  but the situation is likely to worsen due to the impact of the coronavirus (Covid-19) pandemic.

The global health pandemic has disrupted global markets, but also global trade in particular, which has affected the country’s capacity to export.

In sense it has also affected the country’s capacity to import, which may help to contain the almost insatiable desire for (sometimes) unnecessary foreign products.

However, the damage clearly far outweighs the ‘gains’.

The World Trade Organisation (WTO) this week said the impact of the Covid-19 outbreak on international trade is not yet visible in most trade data but some timely and leading indicators may already yield clues about the extent of the slowdown and how it compares to earlier crises.

But disrupted global trading patterns are likely to constrain Zimbabwe’s capacity to generate foreign currency, which is much-needed for critical imports such as fuel and raw materials to sustain local industrial production.

And, from a longer term perspective, the country will struggle to rebuild its foreign reserves.

All things being equal, countries use foreign currency reserves to keep a fixed rate value, maintain competitively priced exports, remain liquid in case of crisis, and provide confidence for investors.

These reserves are also important for meeting external debts and the provision of capital to fund key sectors of the economy.

According global financial data aggregator IndexMundi, the latest value for foreign direct investment (FDI), net inflows (balance of payments, current US dollar) in Zimbabwe was $744,637,200 as of 2018.

Over the past 48 years, the value for this indicator has fluctuated between $744,637,200 in 2018 and ($30,506,680) in 1987.

It is the realisation by the authorities that the pandemic has weakened the country’s foreign currency position, that the Government moved to allow the wider use of free funds by the general public last month.

“Government, through the Reserve Bank of Zimbabwe would like to advise the public that it is making it easier for the transacting public to conduct business during this difficult period by making available an option to use free funds to pay for goods and services chargeable in local currency,” said the central bank governor Dr John Mangudya at the time.

“This intervention takes into account the country’s limited access to foreign finance, which is adversely affecting the country’s balance of payments position.”

Government even moved this week to authorise Money Transfer Agencies (MTAs) to operate during the national lockdown to allow the receipt of foreign currency remittances in the country. 

The move is critical as it comes at a time when most of the country’s businesses have been put to a standby, hence preventing the coming in of foreign currency remittances which cannot be transacted on any digital platforms.

Diaspora remittances have historically played a critical role in the Zimbabwean economy.

In 2019, Zimbabwe received US$635 million in remittances, representing a 2,6 percent increase from US$619,25 million in 2018.

But to what extent can diaspora remittances help sustain the local economy, especially given that the pandemic has affected almost every country’s the world?

In a recent paper titled ‘Zimbabwe Covid-19 Response Mechanism: The Resource Factor’, the Zimbabwe Coalition on Debt and Development (ZIMCODD) projected a drop in remittances by Zimbabweans in the Diaspora due to a broader economic downturn attributable to Covid-19.

Bretton Woods institution, the International Monetary Fund (IMF) has said Covid-19 will have both supply and demand shocks to businesses and economies.

So everyone, everywhere is feeling the effects.

Zimbabwe’s diaspora population, which is in excess of three million, according to International Organisation for Migration (IOM) data have and will continue to be affected, which could lower remittances into the country going forward.

“With South Africa being the biggest host nation to Zimbabwe’s diaspora population and accounting for over 56 percent of remittances, the restrictions in terms of movement of goods and the disruption to business will have negative effects to the majority of ordinary Zimbabweans,” said ZIMCODD in the paper.

“Consequently, the expected decline in diaspora remittances has a net effect on the country’s current acute foreign currency challenges. A decline in individual cash remittances is also going to affect small-to-medium scale businesses in retail, hardware as the remittances form a primary source market for these back of the value chain businesses.”

Clearly, there are limitations to the role of diaspora remittances in such a situation.

WTO director-general Roberto Azevêdo this week said some pain will be inevitable, but policymakers in the various countries need to keep some level of trade going.

“The unavoidable declines in trade and output will have painful consequences for households and businesses, on top of the human suffering caused by the disease itself.”

“The immediate goal is to bring the pandemic under control and mitigate the economic damage to people, companies and countries. But policymakers must start planning for the aftermath of the pandemic,” said Azevêdo.

“These numbers are ugly – there is no getting around that. But a rapid, vigorous rebound is possible. Decisions taken now will determine the future shape of the recovery and global growth prospects. We need to lay the foundations for a strong, sustained and socially inclusive recovery.

“Trade will be an important ingredient here, along with fiscal and monetary policy. Keeping markets open and predictable, as well as fostering a more generally favourable business environment, will be critical to spur the renewed investment we will need. And if countries work together, we will see a much faster recovery than if each country acts alone.” – The Sunday Mail

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