MONETARY POLICY STATEMENT


Issued

IN TERMS OF THE RESERVE BANK OF ZIMBABWE ACT
CHAPTER 22:15, SECTION 46

By

DR. G. GONO
GOVERNOR
RESERVE BANK OF ZIMBABWE

January, 2009

...TURNING OUR DIFFICULTIES INTO
OPPORTUNITIES.
“Exports, Forex, Exports"


1.
INTRODUCTION AND BACKGROUND

1.1 This Monetary Policy Statement which is the first in my
second term of office, is issued in terms of Section 46 of
the RBZ Act chapter 22:15. The Statement comes at a
most difficult time in the short history of our country,
when both the corporate and household sectors of our
economy are under a crippling spell of extraordinary
hardships, occasioned by a combination of severe
domestic and external factors whose impact has been
profoundly negative on everyone across the board.

1.2 Indeed, there is neither the need to dramatise nor
exaggerate anything, and not least of all, to placate
anyone to appreciate the obvious and very painful fact
that life in our country has been, especially over the last
twelve months, extremely difficult for the majority of
people, many of whom remain at a loss as to why history
has allowed things to turn out this way.

1.3 While it is of no consolation to Zimbabweans that the
whole world is today confronted with extraordinary
hardships calling for unorthodoxy and extraordinary

interventions, it is a fact though that our attitude towards
the challenges facing us will, in a large measure,
determine the extent, length and severity of the pain we
will experience during these difficult times.


1.4 It comes as no consolation to many, myself included that
leading the pack of distressed economies today are some
of those countries who yesterday were shouting the
loudest and condemning this Government and the RBZ
Governor’s interventionist polices in the face of
extraordinary
circumstances
twice
the
size
and
magnitude of what is confronting them today.

1.5 Indeed it comes as no consolation to this Governor that,
to the letter and word, fellow Central Bankers the world
over now realise what it means to print money inorder to
save their essential industries and sectors of the
economy. Regarding their current public statements and
justifications for departing from the conventional, one
would be forgiven for the temptation among some

Zimbabweans to ask for intellectual rights compensation
to those statements and behaviour.

1.6 It comes as no consolation to me as Governor that very
strong language has been used by both the US President
Barack Obama and Prime Minister Gordon Brown
among other leaders of the world; condemning the
behaviour of Wall Street bankers and their peers in other
parts of the world and blaming them for plunging the
world into crisis the global economy finds itself in. The
two leaders, backed up by their Parliaments have
proposed tough measures that must be applied to the
bankers.

1.7 Yet, when this Governor has talked tough and
recommended action against our own bankers, I have
been accused of being a personal, vindictive, jealous and
unreasonable
with
some
national
leaders
and
stakeholders coming to the defence of the errant bankers
because of their own vested interests.

1.8 Well, not this time around. Any banker who thinks their
licence is a permission to wreck havoc in this economy
will meet with unprecedented wrath of both punitive and
legal measures without recourse to the emotional
democracy we have witnessed in the past that has
prevented justice from being delivered.

1.9 We should count our fortunes as Zimbabweans that at
least we are still breathing even though our legs are now
too sore to help us withstand the dead weight that we are
carrying because the forces we have been fighting never
expected us to still be standing today.

1.10 In dealing with the enormous challenges still with us, my
advice is that a defeatist attitude will not do and worse
still, a vindictive disposition towards one another will
only serve to delay the date of our economic salvation.

1.11 What will make a positive difference is our levelheadedness in the face of these surmountable challenges
and our collective commitment to deal with the

difficulties head-on, as was shown through a packages of
measures unveiled in the 2009 Budget last week.

1.12 One other observation we make is that, as a Nation, we
are currently vulnerable to many poisonous and divisive
missiles
and
preoccupations,
ranging
from
selfdiscouragement to self-pity; from hopelessness to selfdoubt; and are lurching from one pillar to another, all in
the effort to hide away from taking collective
responsibility for our current state of affairs.


1.13 If we are not blaming MDC-T leader Mr. Morgan
Tsvangirai or Professor Arthur Mutambara for all our
woes, we are finding fault with President Robert
Gabriel Mugabe; if we are not finding fault in these
three we are blaming the West, the East, North or South,
the US, Russia or China for one terrible action or
omission; and if it is not the weather to blame for our
underperformance on farms or the mines, it must be the
Reserve Bank or someone else to blame.

1.14 Such is the level of our mental imprisonment that we can
never pin responsibility or search for solutions to our
troubles from within ourselves first before pointing at
others.

1.15 Even the United States of America where the current
devastating global financial crisis started, preoccupied
with this blame game thing as ourselves here. Both
Republicans and Democrats realise the commonality of
their fate as Americans first and not as separate party
supporters.

1.16 They are getting on with the essential task of finding
solutions to their problems in a united manner across
the divide unlike what we are doing here. The same can
be sited of other countries the world over currently in the
middle of an economic meltdown.

1.17 In Zimbabwe, a common tactic in this blame game has
been to single out the Central Bank and Central Bank
Governor with easy-to-make claims that I am personally
to blame for the self-evident and very painful economic
situation afflicting just about everyone in our country

today. If it makes people feel better and as a
precondition for the country to move forward, I accept
blame in full for our economic crisis to the extent that no
one else in the private sector, the international
community, no on e in our parastatal and local authorities
leadership are prepared to accept blame.


1.18 As Governor, I strongly feel that we have now reached a
critical point in the life of our country where those who
have sought refuge in playing the blame game should
desist from this distractive approach. There is so much
that needs to be done by each and everyone of us to
waste our energies on yesterday while today remains
unattended and tomorrow is being lost to the
determination by others.

1.19 For a forgetful Nation that we have become, it is
opportune that I remind all by way of common cause,
that over the last five or so years, the Central Bank under
my proactive watch has been at the forefront of doing
two things, which I intend to continue doing in this my
second and last term.

1.20 First, I have spared no moment or opportunity, especially
on occasions such as this, to advise the leadership of all
key sections of our nation in government, business,
political parties, civil society, trade unions and churches
on the required medium to long term policy measures to
turnaround the fortunes of our economy in pursuit of
prosperity for all Zimbabweans.

1.21 Second, I have not hesitated to formulate and implement
extraordinary urgent measures, most of which have
become the standard approach the world over, to
address the extraordinary circumstances when it has
become necessary to do so. We have had to survive
under very harsh and more often than not, a hostile
internal and external environment without precedent
anywhere in this world.

1.22 The public record shows the policy advice I have
proffered in my previous monetary policy statements and
whose merit, sincerity and purity of intentions, I believe,
speaks for itself, has either not been seriously discussed
or debated, let alone implemented whole heartedly by

some of those seeking to point fingers at the Central
Bank and me personally today.

1.23 Again, as the record shows, the urgent extraordinary
measures we have invoked have invariably been in
response to the need to fill a gap or address an
emergency created either by a major policy or economic
player or players in the country or by some external
player or players hostile to Zimbabwe, including the
unavoidable natural calamities in the mould of droughts,
floods or disease outbreaks.

1.24 The price control war of June to October 2007 between
the business sector on one hand and labour, civil society,
consumers and Government on the other is as much a
case in point as are the illegal sanctions that this country
has been fighting against since 2001. The BACCOSI
programme which some in industry despise today was
born out of the ashes of these needless fights.

1.25 In effect, the urgent extraordinary measures that the
Central Bank has implemented under my direction have
been no more than fire-fighting.

1.26 What my team and I find as most astounding is that it is
the very same quarters, some inside and others outside
the country, with yet some inside and others outside
politics who have, in every instance, started the
dangerous fires that we have had to put out through
extraordinary measures, who have also been the
loudest in the blame game against the Central Bank
and its Governor.

1.27 As a result, we have had an unfortunate twist of logic in
which economic saboteurs and financial arsonists (from
the BURNING concept) who have been stroking up all
manner of social, political and economic fires of
destabilization all over the place are now masquerading
as economic experts, blaming and demonizing the
Central Bank and this Governor for putting out the
fires they started in the first place.

1.28 You only need to visit the wires or the corridors of
idleness and misfortune where these people spend
most of their time to appreciate what has gone wrong
with some amongst us who pose as civilised

personalities during the day and yet at night are, in
reality, what authors Paul Babiak and Robert D. Hare
describe in their book entitled “Snakes in Suits: When
Psychopaths Go to Work” (Harper Collins Publishers
2007)

1.29 Against this background, I wish to place on record and
to do so with a sense of personal and national pride
that as Governor of the Central Bank I have no
regrets about the fact that my team and I have not
hesitated to put out the fires that some vested
interests have been setting up to burn our country’s
economy in the hope that the “bus can crash.”

1.30 Well, perhaps the message which must go out loud and
clear to all “Snakes in Suits” and those who wish us ill
is that this bus is not about to, and will not, crash.
Furthermore, the message needs to be delivered that
the bus driver is also not about to take any leave of
absence, at least of all before the job is done and done
well.

1.31 It is my considered judgement that public service, and
indeed leadership itself, is about taking responsibility
for one’s decisions, actions and inactions.

1.32 Doing nothing as other would have wanted us to, in the
face of raging fires in the economy or being indifferent to
those fires cannot be a discharge of any responsibility.

1.33 Unfortunately, there are some out there, especially the
said economic, social and political arsonists I have
referred to earlier, who think they know my duties as
Governor of the Central Bank than I either know
them myself or than I have actually discharged them
in our particular circumstances. I am sure they can’t wait
to say the same to my colleague Central Bank Governors
the world over who are travelling the same route of
quasi-Fiscal Operations or printing money in the face of
extraordinary circumstances.

1.34 In my view, the challenge we have faced and the
responsibility I have discharged have been equivalent not
only to putting out very damaging fires deliberately

started but also to mending a roof of a house on fire with
multiple leaks in the middle of a heavy storm.

1.35 While we can all see that the roof is still leaking at least
for now, and that some fires are still raging, the
compelling truth is that many other leaks which could
have sunk the ship had we chosen to leave them
unattended, have indeed been mended and some fires
have been put out.

1.36 Yes, of course, evidence is there for everyone to see that
some leaks are still there and some fires are still raging
above our heads in the form of :

1.37 The current hyperinflationary environment, the critical
foreign exchange shortages, inadequate inputs, and
the general capacity underutilisation across all major
sectors of the economy. Indiscipline and corruption as
cited in the 2009 National Budget Statement by the
Acting Minister of Finance, among several others, are
leaks and fires that have continue to undermine
overall economic recovery, while at the same time

retarding the country’s progress on achieving the
Millennium Development Goals.

1.38 And, whereas in the past, some in our midst may have
displayed Ostrich-like tendencies when confronted with
challenges, the time has come to face and confront our
challenges with honesty and fortitude, knowing fully
well however that we have to do most of the clean-up
and rescue job ourselves more because everyone else in
the world is preoccupied with their own problems and
clean-up jobs to worry too much about us. The
Minister’s Budget of 29 January, 2009 presents an
opportunity for Zimbabweans to pick up the pieces of our
jig-saw puzzle and reconstruct our castle from the firm
foundation laid out in the 2009 Budget by the Acting
Minister of Finance, the Hon. Senator P. A. Chinamasa.
It is the only preoccupation available in town.

1.39 Before unveiling the package of Monetary Policy
measures to take us forward, it is, like was done in the
Fiscal Budget last week, necessary for me to repeat
some realities cited by the Minister last week, against

which this Monetary Policy has been and indeed the
National Budget was crafted.

THE GLOBAL FINANCIAL CRISIS...

1.40 In the first place, and broadly speaking, there is the
stubborn reality of the effects of the current global
financial crisis, which has been dubbed the worst since
the 1930s. The major global economies are facing
unprecedented economic challenges marked by a tight
credit crunch. It is trite to mention that when these
economies catch a severe cold, economies in the
developing world sneeze.

1.41 In the midst of this global credit crisis many developing
countries, including Zimbabwe, are finding it extremely
difficult to raise developmental and general productive
and trade finance in offshore markets.

DETERIORATING TERMS OF TRADE...

1.42 The precipitous decline in international commodity
prices, particularly for platinum, gold, diamonds, nickel

and
copper
is
also
a
stubborn
reality
that
Zimbabweans have to contend with, as this has seen
the country taking a huge knock on its overall mining
export earnings over the past 12 months.

POLITICAL ENVIRONMENT...

1.43 Among the most stubborn realities that are at the heart
of the background to this Monetary Policy Statement is
the protracted search for a political settlement in our
country since the inconclusive harmonised election of
March 29, 2009. I understand however that we may at
last be heading in the right direction if the media reports
we have been having is anything to go by, but as before,
we must never be tempted to count our chickens before
they are hatched.

1.44 Although the impact of a political climate on business
seems so obvious as not to warrant any mention, it is a
common but often overlooked fact that the economic
fortunes of any country are closely tied to its political
circumstances.

1.45 Because the post March 29, 2008 election difficulties we
are experiencing are a political reality, these difficulties
are weighing down the collective energy of the nation, as
well as giving easy excuses that are being used to justify
the lack of international capital flows into the country
on grounds that we are an unstable country lacking in
peace,
political
maturity,
tranquillity,
and
predictability, that we do not deserve support or to be
taken seriously.

1.46 This political instability in our planning environment
is, therefore, a stubborn reality that has to be taken into
account though I believe the situation should not have
been allowed to go on for this long and as Zimbabweans,
we must now deal with and face the negative economic
consequences of this unacceptable situation. Talk of
blaming the Central Bank Governor for it!

PRECONDITIONS FOR INVESTMENT AND CAPITAL
INFLOWS...

1.47 It is fact that given the current global financial crisis and
credit crunch, every nation is trying to claw back and

find refuge in their capital reserves, leaving very little
available for investment outside their boarders. It
follows therefore that only those countries with
exceptional
investment
opportunities,
incentives,
investment codes and sufficient legal protections have a
chance to attract scarce investment capital.

1.48 As has been pointed out before in my many Monetary
Policy Statements, Zimbabwe needs to pronounce itself
ad-infinitum and with legal evidence that:

•
We subscribe to the notion of private property rights
and the enforceability of legal agreements that we
enter into as a country or as private citizens; and

•
That we will remain flexible and mean well when it
comes to those untenable clauses or sections
pertaining to our Investment and Indigenisation
laws.

1.49 These are hard realities we have to reckon with, without
which investment inflows into our country will remain

sub-optimal and hence delay our quick recovery. We are
confident that the appropriate legislative arms of
Government will be ceased with this advice and do
whatever is legally and politically necessary to facilitate
investment inflows into the country as we open a new
chapter in this New Year.

FOOD SECURITY...

1.50 Against the background of repeated droughts and the
adverse effects of foreign exchange shortages on the
agro-inputs supply chain, the country’s food security
status needs major improvement so as to uplift the
general quality of life for the majority of Zimbabweans.

1.51 The food supply gap, thus, has remained a major pressure
point for us, as the limited foreign exchange inflows have
had to be directed towards supplementary food imports,
as opposed to going towards new wealth creation.

1.52 It is for this reason that as the Central Bank, we have
been making and will continue to make clarion calls for
our farmers to fully utilise their land, supported by

agricultural policies and pricing systems that promote
viability of farmers through liberalized market systems as
announced last week by the Hon. Acting Minister of
Finance, Senator P. A. Chinamasa.

BALANCE OF PAYMENTS SUPPORT...

1.53
The absence of capital in the form of lines of credit, and
balance of payments support for Zimbabwe due to the
sanctions imposed on the country are another reality
that is having a significant bearing on the state of our
economy today and therefore adversely affecting our
planning options, as well as limit the range of effective
policy measures at our disposal.

1.54
Lack of balance of payments support has diminished the
flexibility of Monetary Policy options, as the country has
had to rely solely on internal domestic bank finance and
other appropriate financial engineering schemes and
gymnastics to meet its recurrent and developmental
programmes.

1.55
We will continue to engineer and play those gymnastics
as long as we remain under the yoke of sanctions because
our survival as a people is not negotiable.

THE CURSE OF NATURAL RESOURCES...

1.56
Zimbabwe paradoxically stands as one of the world’s
most endowed countries when it comes to the
abundance of God-given natural resources and human
capacities.

1.57
The fact that in spite of the presence of so much mineral
resources and human capacities in our country, we
remain unable to utilize the same signifies the need for
a total paradigm shift in the way we conduct our
economic and financial affairs as a country, as a people
and Government.

1.58
This Monetary Policy Statement is coming at a time
when very little, if any, value is being unlocked from the
country’s vast diamond resources, whilst the abundant
coal bed methane gas also remains completely untapped,

among several other minerals that are highly underextracted. While this is a stubborn reality for now, it is
heartening to note that Government through the recently
announced National Budget has committed itself to
serious action to redress this catastrophe of poverty
amidst plenty.

Zimbabwe’s Mineral Resources

Mineral
Estimated Resource
Base
Current Annual
Extraction Rate
Gold
13 million tonnes
6 tonnes (2008)
Platinum
2.8 billion tonnes
2.4 million tonnes
Chromite
930 million tonnes
700 000 tonnes
Nickel
4.5 million tonnes
9 000 tonnes
Coal
26 million tonnes
4.8 million tonnes
Diamonds
16.5 million tonnes
Infancy
Iron ore
30 billion tonnes
300 000 tonnes
Copper
5.2 million tonnes
None
Coal Bed methane
Largest known
reserves in Southern
Africa
None

THE CORRUPTION BUG...

1.59 As is the case in any environment where economic
fundamentals are constrained, price controls rife, with

pricing distortions the order of the day, the prevalence of
corruption is inescapable.

1.60 Corruption does not only retard overall economic
recovery due to its generation of disincentives for
genuine economic processes but it also imposes a
deadweight loss to society through phenomenal increases
in transactions costs on the back of the attendant
corruption levies and premiums.

1.61 We are pleased to again observe that Government has
removed most if not all manner of price controls and
pricing distortions as announced in the National Budget
last week. This move together with the stiff fines and
penalties prescribed in foreign currency for different
levels of indiscipline should go a long way towards the
reduction and eventual elimination of the bug.

THE CASH SITUATION...

1.62 Repeatedly, and regrettably, the country has suffered
bouts of cash shortages which have disadvantaged both
the corporate and household sectors of the economy.

1.63 As a country, we have to come to terms with this
stubborn reality that we were put under economic
sanctions by Germany which unilaterally cut a 50-year
old contract to supply us with currency printing paper,
machinery, spare parts and inks without notice in July
last year.

1.64 The printing capacity, at Fidelity printers is fixed at 2
million pieces per day and changing this would require
US$500 million in investment costs and a minimum lead
time of 24 months. With the daily fixed 2 million pieces
limit, the growing demand for currency can only be met
through increases in the denominations of the notes.

1.65 This stubborn reality which is beyond the control of the
Central Bank, has been lost to those in our country who,

while they do not want to take responsibility for
anything, are nevertheless very quick to blame the
Governor for the high denominations as if there is
any other alternative given the ever growing demands
for cash in a hyperinflationary environment.

1.66 If you all want to withdraw all your money from the
Banks in one day and do not give us the lead time to print
convenient denominations, we have no choice but to
sacrifice your convenience and give you all your money
but in large denominations because of printing capacity
constraints. It is both an engineering and a physical fact
which the Governor can do very little about even with
the best heart and will in the world.

1.67 As Zimbabweans, we must thus tell each other the truth
about what is and what is not possible. It is not possible
to have our cake and eat it at the same time.

1.68 It is therefore regrettable that some stakeholders here at
home who should know better, have labelled the cash
shortages as “Reserve Bank mischief”, and thus, have
gone about campaigning for harm to come the way of the

Central Bank team or the Governor in his personal
capacity.

1.69 This demonstrates beyond doubt that some important and
yet “do nothing” elements in our society have sunk to
new lows without precedent in the history of
imaginations.

FINANCIAL SECTOR INDISCIPLINE...

1.70 Events during the last quarter of 2008 showed that the
financial sector had fallen back into territories of
indiscipline and general malaise, resulting in the
contamination of ethics in such institutions as the
Zimbabwe Stock Exchange (ZSE) which invented the
deadly phenomena of “burning money”.

1.71 As I have warned the Nation on countless times, “the
phenomenon of burning money”, which was being
cynically equated to the miracle of Jesus Christ feeding
the multitudes with 5 loaves of bread and 2 fish, was a
most inflationary distortion in our economy, as many

people became instant multi-sextillionaires out of doing
absolutely nothing other than stringing-up “connections”
so to speak.

1.72 The new measures herein contained are production
oriented and have no room for the lazy and idle
minds and bodies to exist in our midst, let alone eat
from the sweat of others. The measures constitute a
war against idleness as without some gainful activity,
yesterday’s roadport and world-bank sextillionaires
destined for the starvation market much more than has
been the case for many of their kind since November 20,
2008.

1.73 As true as the sun rises and sets each day, the “miracle”
of “burning” money could not be sustained by men and
women born of flesh and pretending to have the
supernatural powers of our Lord Jesus Christ. It was soon
to back-fire and consume those who were stroking the
fires in the first place.

1.74 Suffice to note that this phenomenon of indiscipline in
banking and stock markets is precisely what has largely
been responsible for the current global economic crisis
particularly in the USA.

1.75 Consequently, Governments in US, Europe and other
emerging market economies have bailed out and continue
to bail out troubled but corrupt institutions built from,
and by what amounts to pyramid fraudsters.

1.76 For instance, in the US, Madoff was involved in a
US$50 billion fraud in a pyramid scheme. Before 20
November 2008, we had many “Madoffs” in our midst
some of whom are still licking their wounds from the
Zimbabwe Stock Exchange crash.

1.77 Furthermore, according to international media reports,
the fifth richest man in Germany, Adolf Merckle
committed suicide at the beginning of January 2009
following a significant loss on the equities trade.

1.78 Not to be outdone, recently too, an Indian computer
giant, Satyam Computer Services was involved in a

US$1 billion fraud in the midst of the on-going global
financial crisis.

1.79 These are but a few examples of outright greed elsewhere
around the world whose moral equivalent many of us
have witnessed here at home over the last few years
under “burning” phenomenon which created impossible
demands for cash and pushed up the country’s
hyperinflation now blamed on the Reserve Bank and the
Governor personally by our “Snakes in Suits” economic
experts.

BEHAVIOURAL TRAITS...

1.80 As one macro-economic unit called Zimbabwe, we need
to re-examine our actions. Our individual and collective
actions of the past have not taken us anywhere,
particularly in the areas of advancing our collective
socio-economic programmes.

1.81 The behaviour of some of our politicians too needs
serious review not least because some of them talk the
most and point dirty fingers at others while they do

between little and nothing to improve the bad situation
on the ground and have never taken responsibility for
anything beyond playing the blame game.

1.82 The behaviour of Government departments which
directly
impacts
on
policy
effectiveness
and
implementation has to change. Some heads of
Government departments are now behaving less as
technocrats and more like the legions of “do-nothing”
politicians in our midst.

1.83 The behaviour of our diplomats also needs to change for
the better for the same reasons.

1.84 We have to maximize output on our farms, mines and
industry at large. The behaviour of our productive
sectors, thus, has to change too.

1.85 The Zimbabwean economy has been progressively
declining
for
the
past
decade,
reflecting
underperformance, and indeed poor performance, in the
broad sectors of the economy.

TAKING ON BOARD THE IMF AND ITS ADVICE...

1.86 The IMF, in its latest evaluation of our situation, dated
13 January, 2009, described Zimbabwe’s circumstances
as grave, and prescribed the following way forward:

(a) Substantial fiscal adjustment, including the termination
of all quasi-fiscal activities by the Reserve Bank, a
matter fully dealt with in the Fiscal budget 2009 and in
this Statement. We do not regard this as an issue
anymore.

(b) Liberalisation of price controls and imposition of hard
budget constraints on public enterprises, a matter again
adequately dealt with in the budget and one which we do
not regard as an issue anymore.

(c) Exchange rate unification and removal of all restrictions
on
making
payments
and
transfers
for
current
international transactions; - a matter fully addressed and

dealt with in this Statement and therefore a non-issue
anymore.

(d) Establishment of a strong nominal anchor for monetary
policy, again a non-issue anymore since both the 2009
Budget and this Monetary Policy Statement addresses the
issue fully.

1.87 What I find surprising if not downright dishonest is that
even before the IMF issued this statement, the Reserve
Bank had already publicly declared that effective this
January, 2009, all these matters would be streamlined in
view of the anticipated normalisation of the political
environment and the resumption of the functionality of
key public sector institutions, as well as the return to
work of the productive sectors of the economy whose
collapse had necessitated extraordinary interventions by
the Monetary Authorities, including through bail-outs
and quasi-fiscal operations which are the order of the day
today the world over.

1.88 All that we ask of our multilateral partners is their
fairness, objectivity and sincerity in dealing with our
situation.

SANCTIONS...

1.89 Although to some this might now sound like what used
to be called a “broken record” before the digital era, I
will continue to point out the truth that the country’s
declining economic performance is also inextricably
bound to the debilitating effects of sanctions imposed on
the country, following the watershed Land Reform
Program embarked on by Government in 2000.

1.90 Declared and undeclared sanctions against Zimbabwe
have been characterized by suspension of balance of
payments support, and the cancellation of life-line
projects, thereby exacerbating the plight of the
vulnerable groups in Zimbabwe.

THIS POLICY STATEMENT...

1.91 Against the backdrop of these realities and the urgency of
the economic difficulties at hand, this Monetary Policy
Statement seeks to achieve the following objectives,
which are also consistent with the recommendations on
policy reforms by SADC, the IMF as well as by other
well meaning centres of excellence here at home and
abroad:

(a) To institute currency reforms which bring transactional
convenience to the public;

(b) To remove the pricing distortions in the economy in a
manner that promotes producer viability;

(c) To streamline and close the Reserve Bank’s quasifiscal operations within the framework of a more
coherent fiscal management system, leaving the Central
Bank with the core responsibilities of managing price
stability
factors,
banking
sector
licensing
and

supervision in addition to official foreign exchange
reserves management;

(d) To liberalise the foreign exchange market in a manner
that sees the exchange rate returning to serving its key
function as a strategic policy instrument for the
achievement of both productive and resource allocative
efficiency in the economy;

(e) To revolutionise agriculture by adopting market and
investor friendly farm policies, supported by the call
for active participation of the private sector, as well as
regional and international investors in supporting our
farmers;

(f) To deepen financial sector stability by enhancing the
prudential supervisory guidelines, particularly in view of
the contemporary global financial system;

(g) To promote the general availability of goods and
services in the economy through the liberalization and
the allowance of the circulation of multiple currencies

in the economy, while also maintaining and indeed redeveloping the intrinsic value of the Zimbabwe dollar as
the country’s sovereign and legal tender which in effect
means “multi-currencying” rather than “dollarizing”
the economy;

(h) To support gold producers through innovative ways
that enable the sector to retain more foreign exchange, as
well as allowing them to leverage on their production to
access regional and international gold-backed lines of
credit;

(i)
To revive and defend the country’s educational
system through Exchange Control Regulations that bring
viability to schools while at the same time leaving room
for the vulnerable groups to continue to access quality
education by using the local currency;

(j)
To maintain a robust interest rate regime that fights
inflation, whilst at the same time ensuring that the
productive sectors have access to offshore and other
domestic foreign exchange denominated loans;

(k) To realign the FCA retention levels in support of
generators of foreign exchange; and

(l)
To proffer necessary policy advice to Government
and the rest of the economy on alternative strategies
that deal with our present difficult circumstances in
robust, audacious, effective and lasting ways.

2. FINANCIAL SECTOR DEVELOPMENTS

2.1 As the record will show, my Statement of 26 November
2008 accepting my reappointment for a second term
reaffirmed the Reserve Bank’s commitment to
return to central banking core business of
maintaining monetary and financial stability.

2.2
This Monetary Policy Statement, therefore, outlines the
key aspects of the financial supervision framework the
Reserve Bank will pursue for the next five years.

PRUDENTIAL SUPERVISION HIGHLIGHTS OF THE
PAST FIVE YEARS

2.3 Prior to 2003, an adverse macroeconomic environment,
weak
supervisory
approaches,
and
regulatory
forbearance gave rise to a number of fundamental flaws
in the operations of banks including the following:
•
Shift from core banking business to speculative
transactions;
•
Abuse of bank holding company structures to evade
regulation;
•
Poor corporate governance, risk management
practices and insider dealing;
•
Rapid local and regional expansion with no proper
internal controls, and adequate capacity; and
•
Disregard of prudential laws and regulations.

2.4 In pursuit of its statutory core mandate of maintaining
financial stability, the Reserve Bank seized the
opportunity to enhance supervisory processes through a
number of measures, including the issuance of

Guidelines, in order to address operational and structural
deficiencies then plaguing the financial sector.

2.5 The Table below provides a catalogue of the main
guidelines issued by the BLSS since 2003.

MAIN GUIDELINES TO THE BANKING SECTOR

Name of Guideline
Date of Issue
1. Corporate Governance Guideline No. 01-2004/BSD 30 Sept. 2004
2. Minimum Internal Audit Standards in Financial
Institutions Guideline No. 02-2004/BSD
30 Sept. 2004
3. Framework on the Relationship Between Bank
Supervisors and Banks’ External Auditors
30 Sept. 2004
4. Accreditation of Credit Rating Agencies, Guideline
No. 04-2006/BSD
30 Sept. 2004
5. Risk Management Guideline No. 01-2006/BSD
31 July 2006
6. Risk Based Supervision Policy Framework
Guideline No. 02-2006/BSD
31 July 2006
7. Special Purpose Vehicle, Securitisation &
Structured Finance Guideline No.01-2007/BSD
1 Oct. 2007
8. Consolidated Supervision Policy Framework
Guideline No. 02-2007/BSD
1 Oct. 2007
9. Circular to Banking Institutions No.012007/BSD:
“Disclosure of On-Site Examination & External
Credit Ratings”
23 Oct. 2007

10. Circular to Banking Institutions No.01-2008/ BSD:
“Excessive Bank Charges”
4 Oct. 2008

2.6 The guidelines also provided for the separation of bank
owners and management in an effort to curtail abusive
practices by owner-managers.

2.7 Other regulatory measures instituted include:
(i)
Implementation of the Banking Supervision Application
(BSA) in 2004, which has enhanced offsite surveillance.
(ii)
Use of Audit Command Language (ACL) software to
evaluate the accuracy and integrity of financial data;
(iii)
Developed and implemented the Financial Inclusion
Framework;
(iv)
Developed the National Microfinance Policy in
conjunction
with
the
National
Taskforce
on
Microfinance;
(v)
Introduced requirement for annual certification of
banking institutions’ IT systems by external auditors; and
(vi)
Prescribed additional disclosure requirements for
banking institutions and asset management companies.

2.8 Notwithstanding the notable achievements, the Reserve
Bank shall continuously improve its supervisory

processes in line with financial sector developments and
international best practice.

Architecture of the Banking Sector

2.9 As at 25 January, 2009, there were 28 banking
institutions under the supervision of the Reserve Bank,
comprising the following:

Type of Institution
Number
Commercial banks

Merchant banks

Finance houses

Discount houses

Building societies

Total

2.10 In addition there were 17 licensed Asset Management
Companies, and 75 operating microfinance institutions,
down from 180 in 2007.

Current Challenges in the Financial Sector

Rampant Financial Indiscipline...

2.11 The Reserve Bank has noted and advised the public of
the despicable laxity, recklessness and contagious greed

that engulfed the banking sector over the past few
months to the detriment of the economy.

2.12 A number of banking institutions were involved in
unethical activities and/or allowed themselves to be used
as conduits for illicit transactions.

2.13 The malpractices were epitomized by the issuance of
unfunded and fraudulently drawn bank cheques and
general disdain for the “know your customer” (KYC)
requirements.

2.14 The imprudent activities in the banking sector
exacerbated the cash shortages and fuelled the ravaging
fires of inflation. Fraudulent activities are detrimental to
financial stability which has to be anchored on the virtue
of confidence.

Viability Challenges in the Asset Management
Industry ...

2.15 An analysis of Asset Management Companies (AMCs)
revealed that many players in the sector are not
conducting meaningful asset management business.

2.16 The sector remains “overgrazed” despite the closure of
14 failed AMCs in the period 2004 to 2006. Currently,
only five out of 17 AMCs account for more than 80% of
total funds under management.

2.17 Some asset management companies continue to operate
with inadequate capital and have resorted to illegal
activities to meet their operating costs.

2.18 As Monetary Authorities, we have on innumerable
occasions warned asset management companies to
concentrate on their core business, yet some of them
have habitually engaged in unethical business practices
including illegal foreign currency trades.

2.19 Further, some AMCs, especially those in group structures
incorporating Banking Institutions, Pension Funds and/or
Insurance Companies, continue to be used as willing
conduits to facilitate diversion from core business.

2.20 As such, the moratorium on registration of AMCs issued
by the Reserve Bank in 2004 remains in force as there is
limited scope for viable business opportunities in the
sector.

2.21 The Reserve Bank’s advice for consolidations and
mergers in the asset management industry has long gone
unheeded.

2.22 With effect from 1 March, 2009 all AMCs that are
under capitalized; that is, whose capital base is less than
USD2.5 million, shall be closed, with no option for
curatorship.

2.23 Further, all AMCs engaging in illegal activities in
violation of the Asset Management Act [Chapter 24:26]

and other applicable legislation shall be closed with
immediate effect, again with no option for curatorship.

Inadequate Regulatory Framework for Non-bank
Financial Institutions ...

2.24 The absence of a well defined and comprehensive
regulatory prudential supervision framework for the
Zimbabwe Stock Exchange, Stock Brokers, Insurance
Companies and Pension Funds has significantly
compromised financial stability.

2.25 Inadequate oversight of the capital market, pension and
insurance sectors has provided a hotbed for illegal
transactions, indiscipline and reckless disregard of rules
and regulations.

2.26 Stock-broking firms have continued to mushroom all
over the market some of which are under resourced, and
are manned by unaccountable one man bands.

2.27 There are no prescribed educational credentials for
registration of stockbrokers.

2.28 Some unscrupulous players in the insurance and
securities sectors took advantage of the absence of
oversight to engage in illegal transactions, indiscipline
and reckless disregard of the applicable rules and
regulations.

2.29 Investigations have revealed that most pension funds and
insurance companies are not complying with the
minimum prescribed asset requirements of 35% and
30%, respectively.

2.30 As Monetary Authorities, we are cognizant of the fact
that financial stability is dependent on the collective
stability of financial markets, financial institutions and
financial infrastructure.

2.31 We, therefore, call upon the Insurance and Pensions
Commission (IPEC); and the Securities Commission
(SEC) to put in place comprehensive prudential

supervision frameworks for the effective supervision of
insurance companies, pension funds, and capital markets
based on international best practice.

2.32 The insurance industry in particular, should be primed
for adoption of the provisions of Solvency II, which
framework has three pillars namely (a) measurement of
assets, liabilities and capital; (b) supervisory review
process; and (c) disclosure requirements.

2.33 Similarly, SEC should subject stockbrokers, ZSE,
financial advisors and other capital market players to
prudential
supervision
in
accordance
with
the
International Organization of Securities Commissions
(IOSCO) core principles for effective supervision.

2.34 As with Basel II for the banking industry, Solvency II
aims at building a robust regulatory framework for the
insurance sector.

2.35 The Reserve Bank stands ready to partner with, and
provide technical guidance to, IPEC and SEC in the
development of the prudential requirements.

MEASURES TO ENHANCE FINANCIAL STABILITY

2.36 The unfolding global financial crisis, considered by
many as the worst since the Great Depression of the
1930s, has once again graphically demonstrated that
financial stability is a prerequisite for the economic wellbeing of Nations.

2.37 The gravity of such crises is usually aggravated by weak
regulation and poor risk management practices.

2.38 As Monetary Authorities, therefore, we will continuously
improve our supervisory processes in line with financial
sector developments and international best practice.

2.39 Going forward, the Reserve Bank will implement a
number of measures aimed at restoring confidence in the
financial system; strengthen risk management systems in
the banking sector; enhance liquidity management and
regulation; strengthen the capitalization of banking
institutions; and adoption of the Basel II framework.

Risk-Based Supervision

2.40 The Reserve Bank’s supervisory framework will
continue to be underpinned by Risk-Based supervision
methodologies, which place emphasis on the accurate
determination of the risk profiles of banking institutions
and adequacy of risk management systems.

2.41 The Risk-Based Supervision framework also provides for
on-going interaction among supervisors, banks and
external auditors through prudential meetings.

2.42 Risk-Based Supervision provides a solid foundation for
implementation of the Basel II framework.

2.43 In
order
to
promote
enhanced
transparency,
accountability and effective market discipline, banking
institutions are required to make disclosures of their
CAMELS and Risk Assessment System ratings in
their half-year and year-end financial statements.

Minimum Capital Requirements ...

2.44 Adequately capitalized banking institutions play a pivotal
role in the economic turnaround process through efficient
financial intermediation.

2.45 As Monetary Authorities, we therefore, call upon
banking institutions to continuously monitor their foreign
currency denominated capital levels and to provide
adequate economic capital in line with their risk profiles.

2.46 On 4 July 2008 the Reserve Bank prescribed minimum
regulatory capital requirements effective 31 August
2008, as listed below:

Type of Institution
Minimum Capital
Requirement
Commercial Banks
USD 12.5 million
Merchant Banks
USD 10 million
Building Societies
USD 10 million
Finance Houses
USD 7.5 million
Discount Houses
USD 7.5 million
Asset Management
Companies
USD 2.5 million

2.47 In order to ensure compliance with the foreign currency
denominated minimum capital requirements on an
ongoing basis, banking institutions are encouraged to
pursue capital preservation strategies that augment the
traditional sources of capital.

2.48 As Monetary Authorities, we reiterate that banking
institutions without capacity to maintain adequate capital
levels commensurate with their risk profiles on an ongoing basis shall be closed or induced into mergers with
no option for curatorship.

Enhancement of Corporate Governance, Risk
Management and Internal Control Systems ...

2.49 My inaugural Monetary Policy Statement of 18
December 2003 emphasized the need for sound risk
management frameworks.

2.50 Recent developments in the financial sector have shown
that a few bad apples ignored the Reserve Bank’s
guidance on prudent risk management.

2.51 Such institutions are reminded that the Reserve Bank has
provided adequate guidance on risk management
expectations.

2.52 As such, every banking institution is expected to
reinforce its risk management systems and internal
controls to ensure that they are adequate for
identification, measurement, monitoring and control.
This should apply for all risks to which the institution is
exposed.

2.53 Once again, every banking institution is called upon to
ensure on-gong compliance with the spirit and letter of
KYC regulations and guidelines issued by the Reserve
Bank.

2.54 Between 1 February 2009 and 30 June, 2009, directors of
banking institutions should receive induction training
covering the following aspects:

(i) functions of the board and board committees;
(ii) roles and responsibilities of directors;

(iii) the roles and responsibilities of management;
(iv) understanding the institution on whose board they sit;
(v) risk management and corporate governance;
(vi) laws and regulations governing banking institutions; and
(vii) Board and director evaluation framework.

2.55 In addition, banking institutions are encouraged to have a
framework for ongoing board and director training.

2.56 Any
director
determined
to
be
insufficiently
knowledgeable of the affairs and condition of the
banking institution under their oversight; or deemed
negligent in the discharge of their duties and
responsibilities; shall be removed from office and
deemed unfit and improper to hold the same position in
any banking institution in Zimbabwe.

Basel II Implementation ...

2.57 As Monetary Authorities, we wish to advise the banking
sector that all banking institutions are required to fully
adopt standardized approaches for allocation of capital
for credit risk, market risk, and operational risk with
effect from 6 February 2009.

2.58 Since 2006, the Reserve Bank embarked on a gradual
implementation approach that allows for smooth
transition to the new system.

2.59 Banking institutions operating in Zimbabwe are already
required to allocate capital for market and operational
risk using the standardized approaches.

2.60 Guideline No:1-2009/BSD: “Technical Guidance on
Basel II Implementation in Zimbabwe,” will be issued in
due course to provide a road-map and expert guidance on
full Basel II implementation in the country.

2.61 All banks will be eligible to apply for the adoption of
advanced approaches with effect from January 2010,
subject to satisfaction of model validation and approval
criteria prescribed in the said guideline.

Effective Supervision of Banking Groups ...

2.62 A number of banking institutions have used unregulated
entities in their group structures as conduits for
indulgence in regulatory arbitrage, that is, by engaging
in non-permissible activities.

2.63 It is imperative that all bank holding companies adopt
the same corporate governance standards as applicable
at banking institutions.

2.64 In addition, bank holding companies receiving funding
from banks should not be used as conduits for the
conduct of activities that banks would otherwise not do at
law.

2.65 The
Reserve
Bank
has
signed
memoranda
of
understanding
with
other
regional
supervisory
authorities to facilitate information sharing and on-site
supervision of all regional subsidiaries of banks under
the supervisory jurisdiction of the Reserve Bank.

Close Monitoring Of Liquidity Risk...

2.66 Recent investigations by the Reserve Bank indicated that
banking
institutions
which
experienced
liquidity
management challenges had diverted the funds of
depositors into non-core business such as stocks, parallel
market activities and purchase of fixed assets.

2.67 Going forward, banks need to demonstrate to the
Reserve Bank that their liquidity contingency plans as
well as their business continuity arrangements are
adequate on an ongoing basis.

2.68 In addition, the Reserve Bank shall regularly undertake
comprehensive
liquidity
stress
tests
focused
on
institutions’ asset and liability structures and liquidity
management strategies.

2.69 Boards of banking institutions should put in place
mechanisms that ensure appropriate board and
senior management oversight over liquidity risk.

Financial Innovation ...

2.70 The current cash crisis presents an opportunity for
financial institutions to promote usage of alternative
means of payment such as local and foreign currency
denominated smart cards, and cell-phone banking.

2.71 Our banking institutions are encouraged to enter into
strategic alliances with local, regional and international
partners to pursue these initiatives.

2.72 As Monetary Authorities, we stand ready to facilitate
such initiatives.

NATIONAL PAYMENT SYSTEMS

2.73 The maintenance of an efficient and robust national
payments system remains one of our major objectives as
a Central Bank.

2.74 It is through this role that as monetary authorities we are
able to maintain confidence and stability of the financial
system.

2.75 In this regard, the Central Bank will continue to support
all initiatives that promote the achievement of this
objective.

2.76 Pursuant to the challenges that were recently experienced
in the financial services sector, the following measures
will be taken:

Clearing and Settlement

2.77 As regulatory authorities, enforcement of strict controls
in the market to curb wayward behaviour through abuse
of the cheque instrument remains one of our priorities.

2.78 The banking community is implored to continuously
apply effective risk management mechanisms and abide
by Central Bank regulations to avert systemic risk which
has the potential of destabilizing the entire financial
sector.

2.79 Having acknowledged risks associated with the cheque
payment stream, the Central Bank, in consultation with
the banking community, will vigorously pursue the
establishment of an electronic Clearing House (ECH),
which will no doubt go a long way in managing risk.

Real Time Gross Settlement System (RTGS)

2.80 Following the suspension and subsequent reinstatement
of the RTGS system, the Central Bank remains

committed to ensuring that the transacting public is not
inconvenienced when effecting their genuine payments.

2.81 The RTGS system, by its very nature, is intended for
high-value high-risk and time critical payments.

2.82 In order to maximize this benefit, the Central Bank, in
collaboration with the banking industry, will continue to
restrict low value payments from the system. Such
payments should be channelled through other non-cash
methods which are retail in nature.

Non Cash Methods of Payment

2.83 The Central Bank acknowledges that macroeconomic
challenges have negatively impacted on the effective
utilization of alternative non-cash retail payment systems
in the country. Efforts to promote non cash means of
payment will be stepped up through engagement of
relevant stakeholders in both the IT and Financial Sectors
of the economy.

2.84 It is our strong belief that there are innovative minds out
there in the country that are capable of bringing on board
initiatives to enhance our retail payment streams which
have largely been impaired by the current inflationary
environment.

SECTORAL OVERVIEW

Gold


3.1 Gold deliveries for the period January to 31 December,
2008 slumped by more than 50 percent to 3 072 kgs
compared to 6 798 kgs over the same period in 2007.

Gold Deliveries

Jan
Feb
Mar April May June July
Aug
Sept
Oct
Nov
Dec
Kgs

3.2 Gold production has largely been constrained by:

i.
Rising production costs;
ii.
Frequent electricity outages; and
iii.
Shortages of critical inputs such as cyanide,
explosives, spare parts and mining equipment
Manufacturing

3.3 The manufacturing sector continues to face a number of
challenges, which include rising production costs,
foreign
currency
constraints,
electricity
supply
interruptions, fuel shortages and brain drain.

3.4 Production in the manufacturing sector continues to
decline, with industry average capacity utilisation
currently below 20%.

3.5 The July 2008 Confederation of Zimbabwe Industries
(CZI) study estimated manufacturing capacity utilisation
at 18.9% in 2007.

3.6 The following factors will underpin performance of the
manufacturing sector in 2009:-

i.
Increased ‘export horizon’ for manufacturers who can
earn foreign currency from local market, under the
special licenced foreign exchange outlets framework;

ii.
Expected growth in the agricultural sector which will
boost production in agro-based industries, given the
traditional strong linkages between these two sectors; and

iii.
Expected stabilisation of inflation and the general costs
of inputs, under the expanded foreign exchange trading
system.

Tourism and Distribution

3.7 The tourism and distribution sub-sector is estimated to
have declined by 11% in 2008, compared to a decline of
13% in 2007.

3.8 International tourist arrivals declined by 58% during the
first half of 2008, compared to the first half of 2007.

3.9 Tourist arrivals fell from 1 262 898 in the first half of
2007, to 531 357 during the same period in 2008.

3.10 The Table below shows statistics on tourist arrivals.

Tourist Arrivals
Tourist Arrivals
1st Half 2007
1st Half 2008
%
Change
Africa
1 132 575
410 968
-64
Overseas
130 323
120 389
-8
Total
1 262 898
531 357
-58
Source: Zimbabwe Tourism Authority (ZTA) – Tourism
Statistics 1st Half Report 2008

3.11 As a Nation, there is, therefore an urgent need for us to
vigorously build an internal cohesive atmosphere that
significantly
contributes
to
the
much
needed
reconstruction of the country’s damaged international
image.

INFLATION OUTLOOK

3.12 The year 2009 is poised to be a critical turning point for
Zimbabwe’s inflation, with rapid disinflation expected
throughout the year.

3.13 The introduction of the special foreign exchange shops is
already benefiting the economy through greater products
availability and significant price decreases.

Sample Basket Price Decreases: October 2008-26 January,

ITEM
PRICE IN
OCTOBER,

US$
PRICE AS
AT 26
JANUARY

US$
PERCENTAGE
DECREASE
1.
10kgs Roller Meal

2kg Sugar

2 kg Salt

750 ml Cooking Oil

2 litres Mazoe

250 g Matemba

1 litre Petrol (Global
effects)

1 litre Diesel (Global
effects)

6 – pack soft drinks
cans

125 g cotton wool

Totals
43.45
24.2
44.30%

3.14 Prices of goods and services are expected to continue
their rapid decline trend over the remainder of the year
while availability is expected to improve against the
following concrete factors:

(a) The adoption of a hard fiscal budget constraint which
entails that the Government sector will only spend
available
resources,
without
any
recourse
to
inflationary monetary finance which in any case the
Reserve Bank of Zimbabwe is unable to print or avail
outside what the economy can generate by way of
foreign currency.

(b) The Reserve Bank has streamlined its operations,
focusing more on inflation control and stability in the
banking sector against the background of renewed
commitments that all line Ministries will now fully
discharge their core functions.

(c) To this end, the Acting Minister of Finance the Hon.
Senator P. A Chinamasa made the following

commitments and declaration in his Budget proposals
paragraphs 145 to 148 which I quote:

• “Essential for shoring up the value of the Zimbabwe
dollar will be the implementation of a combination of
strict and painful fiscal and monetary measures that
relate the Zimbabwe dollar monetary base to
developments in the real sector, and the avoidance of
recourse to money printing beyond the economy’s
production of goods and services.
• The Minister went further to state that to achieve the
above required “discipline and commitment to our
expenditure and revenue targets without permitting
expenditures outside the budget.”

(d) The liberalization of the Exchange Control Policy
Framework, as well as the freeing up of the exchange
rate to be determined in the market will unleash
phenomenal efficiency gains that will help reactivate
greater capacity utilization in the economy. This should
significantly deflate prices;

(e) The market decline in global fuel prices is expected to
significantly reduce producers’ costs which would hive
off inflationary pressures;

(f) The expected positive turn in capacity utilization will
in itself act as a favourable factor in levelling off the
pessimism that had paralyzed the economy. Optimism
generates a self-reinforcing cycle of disinflation
through change in economic behaviour particularly in
the price formation systems; and

(g) The country’s general food supply situation is
expected to improve against the background of the
good rains notwithstanding some constraints farmers
are facing in accessing some of the critical inputs. A
relatively better food supply situation is an important
ingredient in the disinflation process.

(h) As part of our contribution towards curtailing moneysupply growth following the migration of the National
Budget to foreign currency, all sectors of the economy
are hereby advised that the Bank is in its final stages of

winding down residual Quasi-Fiscal Operations of yester
year.

(i) We expect the administrative processes to be completed
by the end of this quarter. To this end, it is instructive to
quote from the Minister’s Budget Statement addressing
the same issue paragraphs 149 to 155 where he said;

“Quasi-Fiscal Operations.
“ The Government of Zimbabwe has been constrained
from funding some of the projects during the last nine
years or so due to the sanctions imposed on the nation.

“The Reserve Bank has in the mean time financed
those quasi-fiscal operations in the areas of
agriculture, dam construction, education and health
among other activities.

“As at December 2008, the Reserve Bank was able to
remove all these expenditures from the Bank’s books
through a Sinking Fund which had been set up to
cover these expenditures.

“The Bank’s balance sheet is now free of these quasi
fiscal expenditures and the RBZ will now concentrate
on its major mandates of assuring the stability of
prices and the financial sector.” end of Quote.

3.15 As Monetary Authorities, we call upon all sectors of the
economy to set aside the burdensome yoke of perpetual
despair and take advantage of these favourable
developments.

3.16 Through combined efforts, we will be able to
successfully break the backbone of the inflation
dragon in the interest of achieving macroeconomic
stability.

3.17 Still on the inflation front, it is strategically important
that the Central Statistical Office (CSO) be adequately
capacitated so as to enable them to carry out substantive
surveys of the latest positive developments on inflation.
We are pleased to note that through the 2009 Budget,
Government has directed the CSO, effective this

month, to begin tracking developments in price
indices in foreign currency terms.

3.18 This essential move, alongside the timely availability of
accurate data is critical in guiding business decisions, as
well as shaping expectations.

4.
MONETARY DEVELOPMENTS

Monetary Growth

4.1 Money supply growth continued on an upward trend, in
part as a reflection of the prevailing macroeconomic
imbalances under which the Government Sector has
largely relied on domestic bank finance.

4.2 Broad money supply (M3) growth increased sharply
from 81 143.1% in January to 658 000 000 000% in
December, 2008.

4.3 The growth has also largely been underpinned by money
creation related to speculative activities on the parallel
foreign exchange and stock market.

THE ZIMBABWE STOCK EXCHANGE

4.4 The Zimbabwe Stock Exchange has been one of the
major sources of money creation, driving money supply
to unprecedented levels in the economy.

4.5 Stock market activities were generally on an upward
trend during 2008, mainly due to low and negative real
returns on the money market, lack of alternative
investment
destinations
and
adverse
inflation
expectations.

4.6 The strong third quarter performance of the bourse
spilled into the final quarter of 2008 before slowing
down after the introduction of the following remedial
Monetary Policy measures by the Central Bank on
Thursday 20th November 2008:

a)
Cancellation of provision for unsecured accommodation
to all banks;

b)
Suspension from the clearing house for any bank that
failed to fund its clearing obligations;

c)
Blacklisting of companies and stock-broking firms that
issued fraudulent cheques; and
d)
Cancellation of trading licence for any bank that issued
fraudulent bank cheques.

4.7 The above measures were instituted to curb fraudulent
speculative behaviour that had gripped the stock market.

4.8 The benchmark industrial index grew from 4 294 points
recorded on the 1st July to peak at 44 305 quadrillion
points on the 17th November 2008. The graph below
shows weekly industrial index developments from 4 July
to 31 December 2008.

The Industrial Index


04-Jul-08
13-Jul-08
22-Jul-08
31-Jul-08
09-Aug-08
18-Aug-08
27-Aug-08
05-Sep-08
14-Sep-08
23-Sep-08
02-Oct-08
11-Oct-08
20-Oct-08
29-Oct-08
07-Nov-08
16-Nov-08
25-Nov-08
04-Dec-08
13-Dec-08
22-Dec-08
31-Dec-08
Trillion

4.9 The growth in the industrial index was largely driven by
speculative activities anchored on parallel market
exchange rate depreciation. Consequently, the significant
share price increases in blue chip counters, especially the
dually listed companies accentuated the artificial asset
price bubble.

4.10 The mining index also experienced astronomical growth,
from 5 722 points in July 2008 to 43 973 quadrillion

points on 17th November 2008. The graph below shows
the trend of the mining index from 4th July 2008 to 28th
November 2008.

The Mining Index


04-Jul-08
13-Jul-08
22-Jul-08
31-Jul-08
09-Aug-08
18-Aug-08
27-Aug-08
05-Sep-08
14-Sep-08
23-Sep-08
02-Oct-08
11-Oct-08
20-Oct-08
29-Oct-08
07-Nov-08
16-Nov-08
25-Nov-08
04-Dec-08
13-Dec-08
22-Dec-08
31-Dec-08
Trillion

4.11 The growth in the mining index was buoyed by the
initially high international commodity prices during the
first half of 2008 and the speculative trading on the
bourse during the first week of November 2008.

4.12 The graphs below show the share price movements of
selected counters that include Old Mutual, AICO, Delta,
DZHL and Econet depicting the asset price bubble and
the deflation of the bubble after the corrective measures
instituted by the Central Bank.

OLD MUTUAL: PRICE PER SHARE


19-Sep-08
25-Sep-08
1-Oct-08
7-Oct-08
13-Oct-08
19-Oct-08
25-Oct-08
31-Oct-08
6-Nov-08
12-Nov-08
18-Nov-08
24-Nov-08
30-Nov-08
6-Dec-08
12-Dec-08
18-Dec-08
24-Dec-08
30-Dec-08
Trillions


Asset price
bubble
($520 Quad)
($500 trillion)
($600 trillion)

AICO AFRICA: PRICE PER SHARE


19-Sep-08
25-Sep-08
1-Oct-08
7-Oct-08
13-Oct-08
19-Oct-08
25-Oct-08
31-Oct-08
6-Nov-08
12-Nov-08
18-Nov-08
24-Nov-08
30-Nov-08
6-Dec-08
12-Dec-08
18-Dec-08
24-Dec-08
30-Dec-08
Trillions

DELTA: PRICE PER SHARE


19-Sep-08
25-Sep-08
1-Oct-08
7-Oct-08
13-Oct-08
19-Oct-08
25-Oct-08
31-Oct-08
6-Nov-08
12-Nov-08
18-Nov-08
24-Nov-08
30-Nov-08
6-Dec-08
12-Dec-08
18-Dec-08
24-Dec-08
30-Dec-08
Trillions

R
I
Asset price
bubble
($30 Quad)
($80
trillion)
($30 Trillion)


Asset price
bubble
($800
trillion)
($40 Trillion)
($55 Quad)

DZHL: PRICE PER SHARE


19-Sep-08
25-Sep-08
1-Oct-08
7-Oct-08
13-Oct-08
19-Oct-08
25-Oct-08
31-Oct-08
6-Nov-08
12-Nov-08
18-Nov-08
24-Nov-08
30-Nov-08
6-Dec-08
12-Dec-08
18-Dec-08
24-Dec-08
30-Dec-08
Trillions


ECONET: PRICE PER SHARE


19-Sep-08
25-Sep-08
1-Oct-08
7-Oct-08
13-Oct-08
19-Oct-08
25-Oct-08
31-Oct-08
6-Nov-08
12-Nov-08
18-Nov-08
24-Nov-08
30-Nov-08
6-Dec-08
12-Dec-08
18-Dec-08
24-Dec-08
30-Dec-08
Trillions

Asset price
bubble
Asset price
bubble
($1 Quad)
($3
Quad)
($40 Quad)
($600 Quad)
($5
Quad)
($2.5 Quad)

4.13 The graphs above show that from 8th November 2008,
the stock market experienced an asset price bubble
driven by irrational bidding up of prices by speculators
who had invaded the equities market.

4.14 The bubble was also inflated by some stockbrokers who
were engaging in illicit trading activities which resulted
in amplified share prices for the blue chip counters.

4.15 The fungibility of the Old Mutual shares resulted in the
share price of the counter being used as a proxy for the
parallel market exchange rate. Consequently, the increase
in share price due to the asset price bubble translated to a
surge in the prices of goods and services in the economy.

4.16 Ideally, stock market indices should reflect the
underlying fundamentals of productivity on the ground.
The stock market prices should, therefore, start to
represent actual economic fundamentals.

4.17 The stock market however, continued to surge against the
background of increasing under capacity utilization, a
clear reflection of the dislocation between economic
activity and stock market trends.

4.18 Resultantly, the asset price bubble led to the creation of
financial wealth not backed by economic fundamentals
thereby accelerating money creation in the economy.

4.19 The high growth in money supply resulted in high
demand for currency from the general public. This put
pressure on the printing capacity of the Monetary
Authorities, which is already constrained by the illegal
sanctions imposed against the country.

MONEY MARKET POSITION

4.20 Throughout 2008, the money market experienced high
liquidity levels.

4.21 The huge liquidity injections were mainly due to
inflation driven Government expenditures, largely related

to the 2008 National Elections, as well as support for
economic and social development programs.

4.22 As a result, money market surpluses surged significantly,
particularly during the last quarter of the year.

Daily Money Market Positions (ZWR)


November 2008
Z$ Billions


Interest Rates...
4.23 As a result of the liquid conditions on the money market,
money market interest rates have remained generally
depressed.

4.24 Deposit rates of the 7-30 day category averaged around
52% since September 2008, while 60-90 day deposit
rates remained in the region of 150%.

4.25 The interbank rate was generally insignificant, reflecting
lack of activity on the interbank market on the back of
surplus liquidity conditions.
Selected Money Market Rates (%)

'Jan-08
'Feb-08
'Mar-08
'Apr-08
'May-08
'Jun-08
'Jul-08
'Aug-08
'Sep-08
'Oct-08
'27-Nov-08
Interbank Rate
365-day TB Rate
60-90 day Deposit Rate
7-30 day Deposit Rate

4.26 The Bank’s overnight accommodation rates continued to
be reviewed in line with the thrust of its lender of last
resort purpose.

Reserve Bank Overnight Accommodation Rates (%)
Month
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jul - 8 Oct 08
13-Nov-08
Secured Rate

Unsecured Rate


Government Expenditures...

4.27 Government expenditures escalated sharply in the first
half of the 2008 largely driven by National Elections and
other development programmes.

4.28 Government’s position at the Central Bank, however,
remained generally in surplus for the larger part of the
second half of 2008, reaching a peak surplus position of
$241.9 quintillion, as at 18 November 2008.

Daily Balances of Gvt’s Account at the RBZ (Z$’billion)


0 1 N o v - 1 8 N o v 0 8

EXPORT PERFORMANCE

4.29 For the period 1 January to 31 December 2008 total
export shipments of goods amounted to USD1.376
billion compared to USD1.606 billion during the same
period in 2007. This represents a 14.32% decline in
exports of goods and services.

4.30 The mining sector contributed 51% followed by tobacco
which contributed 16% as shown in the figure overleaf:
Shipments by Sector (Jan to Dec 08)

Tobacco
Agric
Mining
Manufacturing
Hunting
Horticulture

Agriculture Sector

4.31 For the period 01 January to 31 December 2008, total
exports under the Agriculture Sector amounted to
US$464,591,047 compared to US$541,085,451 worth of
exports for the period January to 31 December 2007.
This represents a decrease in agriculture exports of
14.14%.

Export Shipments by Agriculture Sub-sectors

4.32 For administrative purposes, the Agriculture Sector is
split into 3 sub-sectors namely, General Agriculture,
Horticulture and Tobacco.

4.33 Generally, there has been a decline in export
performance in all the 3 Agriculture sub-sectors.

4.34 Lack of inputs and low capacity utilization are some of
the reasons for the decline in export performance.
However, with the support that is currently being given
to the sector, Agriculture exports are set to increase.

4.35 Exports approved under the three Agriculture Subsectors are indicated in tables 1-3.


4.36 For the period 01 January to 31 December 2008, export
shipments under the general Agriculture sub-sector
amounted to US$209,062,331, a decrease of 4.5% over
2007 shipments of US$218,866,814.
General Agriculture Shipments

Value of Forms
CD1 Approved
(USD) 2008
Value of Forms
CD1 Approved
(USD) 2007
% Variance
January
13,048,447
15,794,499
-17.4
February
14,589,867
16,830,745
-13.3
March
11,357,248
12,919,386
-12.1
April
11,420,492
8,192,453
39.4
May
11,912,034
13,793,242
-13.6
June
16,748,945
19,332,825
-13.4
July
22,694,506
21,638,017
4.9
August
37,059,744
34,660,251
6.9
September
20,666,149
19,501,495
6.0
October
28,980,410
17,522,112
65.4
November
14,573,503
27,200,733
-53.8
December
6,010,986
11,481,056
-47.64
Total
209,062,331
218,866,814
-4.5

4.37 For the period 1 January 2008 to 31 December 2008 total
shipments under the horticulture sub-sector amounted to,
US$24,646,949 compared to US$27,703,307 in 2007,
representing a decline of 11,0%.

Horticulture Export Shipments

Value of Forms
CD1 Approved
(USD) 2008
Value of Forms
CD1 Approved
(USD) 2007
% Variance
January
1,819,960
2,691,173
-32.4
February
2,277,679
2,954,492
-22.9
March
2,035,747
2,821,260
-27.8
April
2,520,091
2,782,585
-9.4
May
2,386,962
3,099,007
-23.0
June
2,032,163
2,424,761
-16.2
July
1,680,213
1,763,504
-4.7
August
1,705,075
1,655,899
3.0
September
4,248,366
2,056,229
106.6
October
1,669,265
1,552,105
7.5
November
1,113,279
2,316,743
-60.4
December
1,158,159
1,585,549
27,0
Total
24,646,949
27,703,307
-11.0

Tobacco Export Shipments

Value of Forms
CD1 Approved
(USD) 2008
Value of Forms
CD1 Approved
(USD) 2007
% Variance
January
31,323,192
72,469,956
-56.8
February
45,930,175
17,239,070
166.4
March
18,959,966
12,222,523
55.1
April
15,087,769
6,988,803
115.9
May
14,443,850
9,916,081
45.7
June
5,908,466
6,136,726
-3.7
July
6,537,413
7,667,814
-14.7
August
10,054,987
15,320,131
-34.4
September
7,885,990
21,835,235
-63.9
October
20,088,863
25,962,190
-22.6
November
27,964,631
51,559,646
-46.5
December
25,593,687
33,811,871
-24.31
Total
203,790,423
247,318,174
-24,3

4.38 Tobacco exports amounting to US$203,790,423 were
processed for the period 01 January to 31 December
2008. This represents a 24,3% decrease over 2007
exports of US$247,318,174 for the period 01 January to
31 December.

4.39 As at the end of the tobacco selling season, 48.7 million
kilograms of tobacco worth US$156.6 million had been
sold representing a 32% decrease in the kgs sold and a
6% decrease in the value realized when compared to
2007.

4.40 The volume of tobacco sold in 2008 fell short of the
estimated 75 million kgs, as it is believed some growers
are still holding on to the crop in protest against prices

Manufacturing Sector

4.41 Total shipments for the Manufacturing sector from 01
January
to

December

amounted
to
US$220,361,232 compared to US$250,463,244 for the
same period in 2007, reflecting a 12,02% decrease.

Total Shipments for the Manufacturing Sector
Month
Value of Forms
CD1Approved
(USD) 2008
Value of Forms
CD1 Approved
(USD) 2007
%Change
January
13,119,598
17,443,436
(24.79)
February
15,283,732
18,200,951
(16.03)
March
14,170,557
21,575,273
(34.32)
April
17,942,822
17,281,713
3.83
May
32,660,990
40,116,557
(18.58)
June
19,859,492
30,265,125
(34.38)
July
17,736,518
21,291,129
(16.70)
August
21,183,675
24,513,395
(13.58)
September
15,794,087
19,091,384
(17.27)
October
20,069,613
17,372,324
15.53
November
12,278,160
26,167,713
(62.64)
December
10,191,964
13,405,380
(24.0)
TOTAL
210,291,208
266,724,380
(21,2.)


4.42 Shipments in the Manufacturing sector have decreased
over the period as a result of the fall in the production
capacity of most companies due to severe shortages of
foreign exchange to import critical raw materials and
spares for machinery, high local production costs, power
outages and high costs of borrowing. On average,

companies are losing six days per month as a result of
power outages.

Mining Sector

4.43 Mineral shipments for the period 1 January to 31
December 2008 amounted to US$676,017,150 compared
to US$801,862,624 realised during the same period in
2007.

4.44 This substantial decrease of 15.69% in shipments can be
attributed mainly to the Global Credit Crunch of
September 2008, which has resulted in the drastic price
fall of minerals on the international markets.

4.45 Generally, mineral prices internationally are on the
downward trend.

4.46 The negative effect of the ever increasing operational
costs, lack of foreign currency for spares and fuel and
power outages also played a role to this plunge in
mineral shipments.

Mineral Shipments for 2008

Month
US$ Value of
Forms CD1
Approved in

US$ Value of
Forms CD1
Approved in

Variance %
January
62,737,393
63,590,867
-1.34
February
57,215,454
56,898,369
0.56
March
64,673,492
97,138,491
-33.42
April
69,919,419
87,537,598
-20.13
May
81,206,212
86,061,014
-5.64
June
70,791,137
81,940,250
-13.61
July
47,822,675
61,708,742
-22.50
August
57,152,188
50,029,678
14.24
September
62,858,436
44,653,245
40.77
October
61,163,584
54,377,081
12.48
November
29,440,807
89,994,081
-68.85
December
19,707,499
64,682,805
-69.53
TOTAL
684,688,296
838,612,221
-18.35

Tourism Sector

4.47 The tourism industry, like any other industry, has not
been spared by the economic challenges facing the
country and this, coupled by the negative publicity the
country
continues
to
receive,
has
affected
the

performance of the whole industry as noted in the
continued downward trend in tourism receipts.

4.48 For the period 1 January 2008 to 31 December 2008,
total receipts stood at USD 29,11 million representing a
staggering 55% decline from the previous year.

Non Consumptive Sector (Accommodation and
Services)

4.49 For the period under review, non consumptive receipts
amounted to USD 17,7 million, a 56% decline compared
to USD 40,3 million received during for the same period
in 2007 as highlighted below. Receipts are however
anticipated to increase slightly as we enter the festive
season.

Non Consumptive Receipts

Months
USD Amount
USD Amount
% Variance
January
1,870,846.03

3,870,345.46
(52)
February

1,585,687.03

4,037,121.66
(61)
March
1,427,483.66

3,906,311.72
(63)
April
1,080,716.66
2,825,103.15
(62)

May
1,879,005.82
3,336,679.00
(43)

June
1,414,567.38
2,707,143.26
(48)
July
1,827,636.48
3,706,631.02
(51)
August

2,654,254.85
3,091,159.77
(14)
September

1,654,855.70
2,812,183.17
(41)

October
797,320.08
3,497,606.04
(77)

November
789,914.28
3,526,331.08
(78)

December
708,759.51
3,073,578.85
(77)
TOTAL
17,691,047,48
40,390,194,18
(56)

Consumptive Sector – Hunting Industry

4.50 Total consumptive receipts for the period under review
declined from US$20 million to US$11 million as
evidenced on the Table 1 below. This figure is expected
to increase marginally as the hunting season is drawing
to a close.

Shipments by Sector (Jan to Dec 08)

Tobacco
Agric
Mining
Manufacturing
Hunting
Horticulture

Hunting receipts

Month
USD
Amount
USD
Amount
% Variance
January
-

13,461.00
(100)
February
92,020.50

171,783.00
(46)
March
680,829.00

688,775.20
(01)
April
1,470,171.78

1,668,196.90
(12)
May
1,815,603.60

2,681,485.46
(32)
June
2,188,155.40

3,304,518.90
(34)
July
1,860,986.90

3,728,311.30
(50)
August
1,801,518.40

3,056,982.60
(41)
September
1,039,143.70

2,661,087.00
(61)

October
441,655.50
1,825,934.80
(76)

November
35,522.00
609,625.96 (94)
December
n/a
n/a
n/a
TOTAL
11,425,606.78 20,410,162.12 (44)

5.
NEW POLICY MEASURES

CURRENCY REFORMS

5.1 Even in the face of the current economic and political
difficulties confronting the economy, the Zimbabwe
dollar ought to and must remain the Nation’s currency,
so as to safeguard our national identity and sovereignty.

5.2 As Monetary Authorities we fully understand that while
our country’s National Anthem, National Flag and
territorial integrity are fundamental political pillars of our
sovereignty, these are complemented by our National
Currency which is a fundamental economic pillar of our
sovereignty.

5.3 Accordingly, therefore, this Monetary Policy Statement
unveils yet another necessary programme of revaluing
our local currency, through the removal of 12 zeroes,
with immediate effect, accompanied by the introduction
of the following new currency denominations:

The New Family of Currency Denominations (after
removal of 12 zeros, with immediate effect):

• $500
• $100
• $50
• $20
• $10
• $5
• $1

CO-CIRCULATION PERIOD...

5.4 In order to ensure that the change over to the new revalued currency is smooth, and in order to also minimize
inconvenience and the disruptions of stakeholders from
their daily farming, mining, industrial or tourism
activities among others, the new re-valued currency will
initially co-circulate with the old currency up to the 30th
of June, 2009.

5.5 For the avoidance of doubt and ambiguities, what the
co-circulation means is that the current denominations
will continue to circulate as legal tender with the
following value-equivalents:

• The current $100 trillion note will be equivalent to the
re-valued $100 note;

• The current $50 trillion note will be equivalent to the
re-valued $50 note;

• The current $10 trillion note will be equivalent to the
re-valued $10 note and so on.

5.6 Beyond the 30th of June, 2009, the old family of
denominations will cease to be legal tender.

EXTENDED SPECIAL FOREIGN EXCHANGE
LICENCED SHOPS

5.7 The policy direction of licensing shops to sell
goods and services in foreign exchange which was
unveiled in October, 2008 has so far yielded the
following positive results:

(a) An increase in the availability of basic
commodities,
in
our
retailing
outlets
throughout the country;

(b) A remarkable dent on inflation, as signified by
the continued decline in the prices pegged in
foreign exchange; and

(c) Producers currently selling in foreign exchange
are managing to directly access raw materials,
enabling them to sustain and increase capacity
utilization.

5.8 The above benefits are, however, being undermined
by the wanton disregard of the law by most
companies and individuals who are illegally trading
in foreign exchange.

5.9 The Reserve Bank is broadening the licensing
framework country-wide, so as to bring the bulk
and indeed entirety of foreign exchange trade into
the visible formal market.

5.10 The Extended Framework Foreign Exchange
Licenced Shops will ensure that there is an
increased
number
of
participating
operators
through licencing of those traders charging goods
and services in foreign currency, and ensuring that
they fully account for all proceeds emanating from
such activities.

5.11 The extended framework for licencing of shops to
sell goods and/or services in foreign currency

implies the transformation of the entirety of
Zimbabwe’s commercial sector into Special
Export Processing Zones, or Foreign Currency
Generating Zones.

5.12 In the absence of the traditional sources of foreign
currency generation in the country, it is envisaged
that the expanded foreign exchange generation
capacity will bring untapped resources into the
formal banking system thereby strengthen our local
currency.

5.13 The following sectors of the economy shall be
licenced to sell goods or services in foreign
currency;

i. Agriculture
ii. Manufacturing
iii. Mining
iv. Tourism

v. Transport
vi. Services
vii. Construction
viii. Banking and Finance
ix. Media
x. Entertainment
xi. Sport
xii. Automotive Industry
xiii. Distribution
xiv. Energy
xv. Small Scale Business Sector
xvi. Flea Markets
xvii. Post and Telecommunication
xviii. Information Communication Technology
xix. Education
xx. Health
xxi. Pharmaceutical
xxii. Beauty and Care
xxiii. Street Vendors

Licencing Requirements

5.14 All Stakeholders are, therefore being advised to
apply for the special foreign exchange licences, as
any instances of trading in foreign exchange
without the requisite licence will attract heavy
penalties, including closure of all banking accounts
in Zimbabwe and confiscation of goods or proceeds
from
such
unlicensed
trades.
A
detailed
Supplement
to
this
Statement
outlines
the
intricacies of the enhanced licensing framework.

Open Market Sales to the Reserve Bank

5.15 All licensed traders, save for those explicitly
exempted, are to sell 5% of their gross foreign
exchange sales to the Reserve Bank, at the going
market exchange rate;

Payment of Non-refundable Annual Licence Fees

5.16 All traders to be licenced under the Extended
Framework for Foreign Exchange Licenced Shops
shall be required to pay a non refundable annual
licence fee, as follows:-

Table: 2 Payment of Foreign Exchange Licenced Shops Annual
Licence Fees


ZONE
CITY/TOWN/LOCATION
(Examples)
ANNUAL
LICENCE FEES
(PAYABLE IN 12
MONTHLY
INSTALMENTS)

Urban
(All Sectors)

Harare, Bulawayo, Mutare, Masvingo,
Gweru,


USD12,000
per
outlet
annum


Peri – Urban
(All Sectors)
Redcliff, Seke, Ruwa
USD 6,000 per outlet per
annum


Towns

(All sectors and all areas with
town council status)


Kadoma, Chegutu, Beitbridge,
Bindura, Chiredzi, Chinhoyi, Karoi,
Marondera, Kariba, Gwanda,
Chitungwiza, Zvishavane, KweKwe


USD 4,000 per outlet per
annum


Rural

(All sectors and areas with rural
district council status)
Mt Darwin, Mutoko, Murehwa,
Chimanimani, Nyanga, Esigodini,
Lupane, Filabusi
USD 1,200 per outlet per
annum


Small to Medium Enterprises (All
Sectors Registered with Ministry
of SMEs)
Urban Council located
USD 3,000 per outlet per
annum

ZONE
CITY/TOWN/LOCATION
(Examples)
ANNUAL
LICENCE FEES
(PAYABLE IN 12
MONTHLY
INSTALMENTS)
Small to Medium Enterprises (All
Sectors Registered with Ministry
of SMEs)
Town Council located
USD 2,000 per outlet per
annum
Hawkers – Urban
As Above
USD25 (once off
payment)

Hawkers - Town
As Above
USD10 (once off
payment)
Hawkers - Rural
As Above
Free Licencing
Schools and Tertiary Institutions
All Zones
Free Licencing
Farming Community – A2

All Zones
USD 1,200 per outlet
Farming Community – A1

All Zones
Free Licencing


Adoption of Dual Pricing Arrangements
5.17 The Zimbabwean dollar remains the country’s
legal tender as recognised by the various legal
statutes, and as such shall continue to be used as a
medium of exchange for all transactions in the
country.

5.18 All traders shall therefore in addition to selling
their goods and services in foreign currency, adopt
a dual pricing framework where goods will also be
quoted in local currency. This means that prices

can be in Rand and Zimbabwe Dollars, USDollar
and Zimbabwe Dollar as the case may be.

5.19 The dual pricing framework to be adopted by all
licenced entities shall be legally enforceable and
the pricing formulae to be implemented shall be
based on the inter-bank market determined
exchange rate which shall be fixed at the mid-rate
level and communicated to the market by the
Reserve Bank of Zimbabwe on a regular and/or as
appropriate.

5.20 The Extended Framework for Foreign Exchange
Licenced Shops is expected to achieve the desired
objective of increasing the number of participating
outlets and covering a wide spectrum of the
country’s economic sectors to ultimately increase
the availability of goods and services in the
country.

5.21 In order to improve the competitiveness of
Foreign Exchange Licenced Shops, thereby ensure
the sustainable provision of goods and services by
both the public and private sector, the following
institutions’ trading arrangements, shall be reoriented in line with this Extended Framework.

Parastatals and Public Utilities

Zimbabwe Electricity Supply Authority (ZESA)

5.22 In recognition of the challenges faced by ZESA in
importing electricity from neighbouring countries
and the sourcing of spare parts and the need to
retain critical staff, ZESA will, with immediate
effect be granted a licence to bill or charge their
electricity tariffs in foreign currency.

5.23 However, in order to protect the disadvantaged
groups in society, the levying of electricity tariffs

in foreign currency shall be limited to corporates
(both exporting and non-exporting, and Foreign
Exchange Licenced Shops), NGOs, Embassies,
International Organisations, and residents in low
density suburbs.

5.24 Residents in high density areas and those domiciled
in the communal areas shall continue to pay
electricity tariffs in local currency. This is in line
with the recently announced 2009 National Budget.

Zimbabwe National Water Authority (ZINWA)

5.25 Our position, as Monetary Authorities regarding
ZINWA is well known and documented. We
believe ZINWA should go back to Local
Authorities as we recommended to Government a
long time ago. We are happy that Government
accepted our recommendation. While Government
is still working out the logistics of disentanglement,

we have given ZINWA the licence to charge all
corporates and residents in low density suburbs in
foreign currency. All high density and communal
consumers,
hospitals,
non-foreign
currency
charging schools and social centres shall continue
to be levied in local currency, where necessary.
This is in line with the recently announced 2009
National Budget.

Hwange Colliery Company

5.26 To improve capacity utilization and ensure
availability of coal to industry and commerce,
Hwange Colliery has been granted, with immediate
effect, licence to sell coal and its associated
products to all their customers in foreign currency.

5.27 Hospitals, schools not charging in foreign exchange
and other social centres shall continue to pay for

coal supplies in local currency. This is in line with
the recently announced 2009 National Budget.

Milk Producers

5.28 In recognition of the fact that milk producers’
expenses
such
as
Dairiboard,
are
largely
denominated in foreign currency and given the
need to improve the supply of milk and
subsequently
re-energise
the
dairy
sector,
Dairiboard has been, with immediate effect,
granted permission and licence to charge for all its
milk products in foreign currency.

Local Authorities

5.29 To encourage and facilitate the restoration of
efficient service delivery, that is, refuse collection,
road maintenance, health delivery and other
services, all Local Authorities are, with immediate

effect, being granted licences to charge their rates
and other fees in foreign currency to all corporates
and low density residential areas. This is in line
with the announced 2009 National budget.

5.30 Charges for high density residential areas,
hospitals, schools not charging in foreign exchange
and other social centres shall continue to be in local
currency.

Air Zimbabwe (Pvt) Ltd

5.31 In order to ensure viability of the Airline and less
dependency on Government for fuel, spare parts,
IATA fees and other foreign currency related costs,
Air Zimbabwe was granted, a licence to charge for
all its fares on local, regional and international
flights in foreign currency. This is in line with the
recently announced 2009 National Budget.

TelOne, NetOne and POTRAZ

5.32 TelOne, NetOne and POTRAZ, including all
service providers in the telecommunications
industry, shall charge for their services in foreign
currency. This is in line with the recently
announced 2009 National Budget.

NRZ and ZUPCO

5.33 The Monetary Authorities recognize challenges
being faced by players in the transport sector in
procuring spares parts and fuel.

5.34 With immediate effect, the National Railways of
Zimbabwe, ZUPCO, Rural Transport Operators
and Commuter Omnibuses, shall charge for their
services in foreign currency. This is in line with the
2009 National Budget.

Print and Electronic Media

5.35 To
enhance
the
Zimbabwe
Broadcasting
Corporation’s (ZBC) ability to reach to all corners
of the country, with immediate effect, ZBC shall be
allowed to charge licencing fees, advertising slots
and any other services in foreign currency.

5.36 All players in the print media shall also charge for
their products in foreign currency. This is in line
with the recently announced 2009 National Budget.

Real Estate

5.37 All property transfers shall be paid in foreign
currency. However, no such transfers shall be
concluded without authentication of the mode of
payment for the property from the Deeds Office.

5.38 The Deeds Office shall closely work with
Exchange Control to ensure that all players comply
with this requirement.

Street Vendors and Hawkers

5.39 Street vendors and hawkers operating in urban
areas, as designated by the country’s laws, shall be
eligible for the payment of a once-off licence fee of
USD25 or its equivalence, prior to issuance of the
Reserve Bank identification card for licencing to
sell in foreign currency.

5.40 They will not be compelled to sell to the Reserve
Bank the statutory 5% requirement.

Rural Traders

5.41 In order to encourage investment into rural areas
and promote increased supply of basic commodities

to the rural populace, all business centres under
Rural District Councils shall be designated Foreign
Currency Free Zones.

5.42 All rural traders domiciled in these Foreign
Currency Free Zones shall pay an annual licence
fee of USD1,000 and shall be exempt from the
open market sales to the Reserve Bank.

5.43 Notwithstanding the non-application of licence
fees and surrender requirements, all rural traders
shall be compulsorily licenced.

Schools and Tertiary Institutions

5.44 All academic institutions intending to charge
school fees in foreign currency will be exempted
from the payment of the annual licencing fees and
the 5% upfront market sales. These will however
still need to be licenced under the framework.

5.45 Urban and private schools as well as tertiary
institutions shall be allowed to charge fees in
foreign currency. Communal schools shall levy
their fees in local currency.

Agricultural Sector

5.46 Agricultural trade and marketing in Zimbabwe is
currently governed by various statutes meant to
protect consumers and producers from instability of
agricultural commodity prices.

5.47 Agriculture is well diversified with over 23 types
of food crops and cash crops grown. The main food
crops include maize, sorghum, pearl millet, finger
millet, groundnuts, soyabeans, wheat, sugarcane,
barley and sunflower.

5.48 The main cash crops are tobacco, cotton, coffee,
tea and horticultural products. The main livestock
production include beef, dairy, poultry, pork, small
ruminants, ostrich and other farm animals on a
smaller scale.

5.49 Marketing of the majority of these agricultural
products was liberalized during the Structural
Adjustment Programme from 1990 to 1997, which
saw the commercialization and full liberalization of
marketing in dairy, beef, cotton, soyabeans,
groundnuts, and horticultural products.

5.50 However, the current marketing of agricultural
products has been heavily influenced by Exchange
Controls inhibiting producers to directly charge
foreign currency for the commodities traded given
the policy thrust to have producers receiving import
parity prices for all commodities.

5.51 Changes to marketing of these commodities
require that authority be granted to producers
and commodity traders to charge in foreign
currency for both domestic agricultural produce
and imports.

5.52 Currently, Government controls the marketing of
tobacco, cotton, maize, sorghum, millets, and
wheat.

Marketing of Non-exportable Agricultural Produce.

5.53 Currently maize, sorghum, millets, and wheat are
specified products under the Grain Marketing
Board Act. These products can only be traded
through the GMB or with their express authority.

5.54 These grains play an important role in national
food security, as they are the major staple cereal for

direct consumption and therefore strategic for
national and household food security.

5.55 Specification of these products under the Grain
Marketing Board Act was meant to influence
production, price stability, distribution and supply
of the grains and their finished products and also to
closely monitor the food balance sheet for the
country.

5.56 Shortages of foreign currency through the formal
channels and structural inefficiencies of the GMB
have meant that producers have been unable to
receive import parity prices for their products
resulting in rampant side marketing and smuggling.

5.57 As Monetary Authorities we are pleased that the
Acting Minister of Finance last week unveiled
measures committing GMB to pay import parity
prices in foreign exchange.

5.58 Under the new framework, farmers can thus, now
sell their produce in foreign exchange.

Marketing of Exportable Agricultural Produce

Tobacco
5.59 The marketing of tobacco is currently governed
through the Tobacco Industry and Marketing and
Levy Act administered by TIMB.

5.60 In order to ensure that tobacco growers are fairly
compensated and enable the reinvestment of their
proceeds into future production, tobacco growers
shall be entitled to 100% of the foreign currency
proceeds from the sale of tobacco at the auction
floors or any designated contract of sale point.

5.61 This means that all tobacco merchants shall be
required to raise offshore lines of credit for

purposes of purchasing tobacco from the auction
floors and financing of contract growing of
tobacco. In this regard, no merchant shall be
allowed to purchase green leaf tobacco using
foreign exchange resources sourced from the
local market.

Cotton
5.62 The new cotton marketing arrangements shall
allow cotton merchants to purchase cotton seed
from growers in foreign currency and to charge
local spinners and weavers in foreign currency for
lint sold domestically. Cotton ginners shall also be
allowed to sell seed cotton in foreign currency.

5.63 The cotton merchants shall also be required to
raise offshore lines of credit for purposes of
financing
contract
growing
and
farm-gate
purchases
of
cotton.
Similarly,
no
cotton
merchant shall be allowed to purchase cotton

using foreign currency sourced from the local
market.

5.64 All tobacco and cotton pre-shipment finance and
loans for merchants shall be registered with the
Reserve Bank for monitoring purposes.

5.65 In this connection, all farmers intending to
charge their agricultural produce of non-controlled
crops in foreign currency shall be licenced by
Exchange Control under the Extended Framework.

5.66 Such farmers shall be exempted from the
payment of the annual licencing fees and the 5%
upfront market sales to promote infrastructure
development in farms and enhance agricultural
productivity.

Banking and Finance

5.67 For my colleagues in the Banking Sector, I have
a piece of advice for them in these challenging
times. It is now time for the industry to develop
aggressive marketing strategies, incentives and
products that promote banking in foreign currency,
especially by individuals.

5.68 With immediate effect, all restrictions on foreign
currency cash withdrawals are removed. Banks are
therefore, required to implement complementary
measures to ensure that cash is readily available to
the transacting public. In this respect, Banks shall
continue to be allowed to import foreign currency
cash from their Nostro Accounts.

BANK CHARGES

5.69 To ensure the viability of the Banking Sector,
Authorized Dealers can now levy their bank
charges for Foreign Currency Accounts and related
transactions in foreign currency, export for nonforeign exchange earning entities, individuals and
other special cases.

5.70 Banks are further encouraged to apply prudent
lending practices when lending to individuals to
finance their Current Account transactions. Such
lendings shall attract an interest rate of not more
than LIBOR + (1-6 %) depending on customer risk
assessment profiles.

5.71 The Exchange Control priority list for payments,
is hereby removed and market players are expected
to compete for funds. Banks are, however,
encouraged to ensure that most of their loan

advances is biased towards the productive sector to
reinvigorate the supply side of the economy.

Point of Sale Convenience

5.72 The Foreign Exchange Licenced Shops trading
arrangements have also brought about challenges to
the transacting public in respect of lack of lower
denominations
(coins)
and
emergency
of
counterfeit notes.

5.73 In order to encourage the banking sector to apply
its innovative ideas in the establishment of plastic
money and bring more convenience to the
transacting public in Foreign Exchange Licenced
Shops, banks that install POS machines and
systems in foreign exchange trading areas shall be
exempt
from
the
open
market
disposal
requirements on their foreign currency earnings.

5.74 Banks are expected to encourage the transacting
public to open individual FCAs through which the
POS systems shall be implemented in line with the
ZIMSWITCH mechanism.

5.75 In addition, banks are encouraged to have debit
cards (Master card/Visa) for their FCA customers,
for
transactional
purposes,
locally
or
internationally.

Payment of Salaries in Foreign Currency

5.76 All registered foreign exchange licenced shops
are advised that they can pay their employees in
foreign currency from the proceeds of their
registered activities, with no Exchange Control
approval required.

5.77 Such payment of salaries will, however, be done
under advice to Exchange Control and the salaries

will only be paid through the employees’ FCAs
established with local Authorised Dealers.

5.78 The same modalities on the payment of salaries
in foreign currency shall also apply to staff of
organisations
such
as
Non-Governmental
Organisations,
Embassies,
International
Organisations and Diplomatic Missions, whose
funds are treated as free funds.

5.79 All corporates shall with immediate effect be
allowed to pay salaries in foreign currency for their
employees
without
prior
Exchange
Control
approval. However, all such requests shall be
processed at bank level.

LEGISLATIVE SUPPORT

5.80 For this framework to yield the expected positive results,
a
firm
Legislative
and
Judicial
reinforcement

mechanism, supported by active follow-ups and
surveillance
programmes
by
the
country’s
law
enforcement arms to ensure that only those licensed can
trade in foreign exchange has been put in place.

5.81 Given the extended nature of the licensing framework,
there is no reason why companies or individuals should
be tempted to operate without a licence and thereby
risking a brush with the law.

GOODS PURCHASE VOUCHERS IN FOREIGN
EXCHANGE

5.82 In order to deepen the participation of traders and
producers of goods and services in the special foreign
exchange shops programme, the Reserve Bank is inviting
willing participants, particularly retailers and wholesalers
to promote customer loyalty in their brands through
issuance of Goods Purchase Vouchers in Foreign
Exchange.

5.83 Under this framework, the participating retail and
wholesale outlets develop buying credit schemes where
they
issue
vouchers
to
institutions
for
onward
distribution to their staff for use in buying from the
licensed shops.

5.84 The institutions receiving the vouchers then enter into
concrete foreign currency credit schemes with the sellers,
settling the underlying foreign exchange debts directly on
behalf of their staff.

5.85 As Monetary Authorities, we are pleased that already
some traders have come forward with offers of such
credit schemes which the Reserve Bank, on behalf of the
Ministry of Finance, and is going to operationalise for
the convenience of our Civil Servants throughout the
country beginning this month. The vouchers concerned
form the first charge against Government’s foreign
currency collections and the necessary authorities from
both Ministry of Finance and ZIMRA are in place.

TO DOLLARISE OR NOT TO DOLLARISE

5.86 As Monetary Authorities, we wish to highlight that the
framework of licensing the special foreign exchange
shops does not amount to the dollarisation of the
economy in the strict technical sense of the word. All we
are doing is to liberalize our trading environment by
multi-currencying it.

5.87 This is a tailor-made strategic intervention that is meant
to bring convenience to the general public, as well as
supporting productive efficiencies, whilst at the same
time preserving the sovereign Zimbabwe dollar by giving
it company among other currencies of choice, which is
the essence of multi-currencying.

RESERVE ASSETS

5.88 As announced by the Minister in his Budget,
Government has reclassified into Strategic Reserve

Assets for the country, the following minerals as is the
case with gold:

(a) Gold;
(b) Diamonds;
(c) Platinum; and
(d) Emeralds.

5.89 What this means is that the Reserve Bank will, with
immediate effect, licence and closely oversee the
financial flows in these minerals, as well as other
marketing arrangements, with close cooperation with the
Ministry of Mines and other relevant arms of
Government.

5.90 As Monetary Authorities, we implore the legislative arms
of Government to enact the necessary supportive
statutory measures that will enable us to maximize
economic value out of our strategic minerals. This matter
has remained hanging for a very long time until now.

EXCHANGE RATE MANAGEMENT

5.91 As clearly stated in the Fiscal Budget proposals
prescribed last week by the Minister, the exchange rate
remains a key instrument for policy signalling and
promotion of foreign exchange generation in the
economy.
5.92 In line with the Minister’s delegated authority to the
Governor, I hereby advise that with effect from today,
the following exchange rate arrangements, will come into
effect:

(a) All economic foreign exchange transactions will be
effected at the interbank exchange rate, determined
through the voluntary buying and selling activities of
economic agents through the banking system.

(b) Given the currency revaluation, combined with the need
to give impetus to the export sectors, the starting
interbank exchange rates will be at:

•
Z$2 (re-valued) (Two trillion Zimbabwe Dollars
before Revaluation), is to equal a unit of the
South African Rand; and
•
Z$20
(re-valued),
Z$20
trillion
before
revaluation; to a unit of the US dollar, with all
cross rates against all the other currencies
applying.

(c) Post the 2nd of February, 2009, the exchange rate shall be
determined in the market, with midrate average daily
rates being published from public data to guide the
transacting public and the rest of the economy.

LOCALISATION OF PLATINUM AND DIAMOND FCAs

5.93 With effect from the 2nd of February, 2009, all special
dispensations allowing the platinum and diamond mining
companies to keep offshore FCAs has been and is hereby
revoked, so as to ensure that Zimbabwe’s extractive
industries fully benefit the local economy.

5.94 What this means is that by the 2nd of February, 2009, all
offshore accounts currently collecting Zimbabwe’s
exports should be transferred and banked onshore with
Zimbabwe domiciled banks of one’s choice.

5.95 It is important to note that this move does not in any way
take funds from the affected companies, as they will
continue to have 100% autonomy on the management of
their localized FCAs, as is the case with all other
exporters.

INTEREST RATES

5.96 In order to give the banking sector robust income
streams, particularly in light of the shift of the bulk of
their expenditure overheads into foreign exchange, the
Reserve Bank encourages banks to deepen issuance of
foreign exchange loans in support of productive
activities.

5.97 Under this framework, the country will have a two-tier
money market system, comprising local currency
lending, which will be at inflation-consistent interest

rates, and foreign exchange lending which will be at
interest rates that take into account the banks’ risk
assessments, as well as the cost of capital in international
financial markets.

5.98 Banks are, therefore, encouraged to formulate consistent
credit risk systems that ensure that there is no prejudice
to those stakeholders who want to borrow in Zimbabwe
dollars, whilst at the same time ensuring healthy asset
portfolios on foreign exchange lending.

5.99 Whist it is not the intention of the Reserve Bank to
prescribe banks’ lending rates in foreign exchange, past
experiences where some banks have gone rogue to the
detriment of the welfare of the public impel that general
guidelines be provided.

5.100
Accordingly, therefore, all banks providing foreign
exchange loans shall present to the Reserve Bank their
general term sheets across different risk categories for
assessment of reasonableness and approval.

5.101
This oversight process is meant to ensure that
borrowers are protected from predatory interest charges.

5.102
Reflecting
the
Reserve
Bank’s
general
unwillingness to create inflationary pressures through
lending to the banking system, accommodation rates on
local currency lending will continue to be highly penal,
and shall remain pegged at the current levels of:

•
10, 000% for secured local currency lending; and
•
40, 000% for unsecured local currency lending.

5.103
It should be noted that this approval process will
only determine the upper limit tolerance levels above
LIBOR (London Interbank Borrowing Rate), and each
bank will be free to vary the obtaining interest levels
within that threshold on a loan by loan basis.

DEVELOPMENT AND ENERGY SECTOR FINANCE

5.104
As was previously announced to the public, Fiscorp
(Pvt) Ltd will, during the course of this year, be

transformed into a fully fledged Development and
Energy Sector Financing Institution.

5.105
This institution, which would be self-funding,
would take-up what are currently quasi-fiscal operations
of the Reserve Bank.

5.106
The thrust of the Reserve Bank would, therefore, be
concentrated on inflation control, financial sector
stability and foreign exchange management.

FINANCIAL SECTOR CONSOLIDATION

5.107
In order to cushion the country’s financial system
from the current global financial melt-down, there is
need for our banks’ capital bases to be deepened.

5.108
For this to be achieved, banks are encouraged to
consolidate and strengthen their operations through
mergers and/or shareholder capital injections.

STATUTORY RESERVES MANAGEMENT

5.109
The
swiftly
evolving
local,
regional
and
international financial environment requires that greater
emphasis be placed on striking a fine balance between
guidelines that promote operational viability of banks
and those measures that seek to achieve medium to longterm solvency in the financial sector.

5.110
Consistent with this, it has become necessary that
the Reserve Bank reviews and fine-tunes its statutory
reserves policy.
5.111
Under the current framework, the statutory reserves
payments are as follows:

STATUTORY RESERVE LEVELS

Statutory Reserve Ratios ( effective 25 March 2008)
Commercial banks and Merchant banks
Current Level
Demand and call deposits
50%


Savings accounts
50%


Repos and buybacks
50%


Discount Houses
50%

Finance Houses
40%


Building Societies
10%


5.112
In line with the changing operating environment, the
following statutory reserves framework shall apply, with
effect from Friday the 6th of February, 2009:

New Statutory Reserves

Deposit Clusters


Commercial banks and
Merchant banks
Old Level
(local currency)
New Level
(on local currency
deposits)
New Level on
Foreign Currency
Deposits


Demand and call deposits
50%
15%
10%


Savings accounts
50%
15%
10%


Repos and buybacks
50%
15%
10%


Discount Houses
50%
15%
10%


Finance Houses
40%
10%
7%


Building Societies
10%
5%
2,5%

5.113
All banking institutions are called upon to ensure
that their operational systems comply with these
requirements.

FCA RETENTION BY EXPORTERS

5.114
In order to give further impetus to our exporters, the
FCA upfront sales to the Reserve Bank has been reduced
from the current 15% of exports to 7,5%, with effect
from 1 February, 2009.

5.115
This means that exporters can now retain 92,5% of
their export proceeds in their FCAs.

LIQUIDATION OF FCAs

5.116
In order to build confidence in the country’s foreign
exchange market, all holders of FCAs, including
exporters can hold foreign exchange in their FCAs
indefinitely.

5.117
The 21 day liquidation requirement, has, therefore,
been revoked with immediate effect.

WAY FORWARD ON THE ZIMBABWE STOCK
EXCHANGE

5.118
For some time now, there has been no trade on the
Zimbabwe Stock Exchange (ZSE), as the market
absorbed the aftermaths of the rogue trading that had
gripped the bourse during the second half of 2008.

5.119
In order to safeguard the ZSE from relapsing into a
similar disruptive mode, it is pleasing to note that the
relevant oversight authorities namely the Securities
commission are putting in place a strict code of conduct
and tight risk Management guidelines with the backing
of the Ministry of Finance. Again the Minister of
Finance was very clear in his pronouncements relating to
this subject in his Budget Statement last week.

5.120
It is also recommended that the ZSE enables
companies to raise foreign exchange by putting in place

internally consistent frameworks that enable the
valuation and trading of shares in foreign exchange as
already approved through the budget Statement.

5.121
The Reserve Bank stands ready to issue the ZSE
with appropriate foreign exchange licences so as to
transact in foreign exchange legally in terms of the
Exchange control Regulations.

5.122
To kick-start this process, listed companies, together
with their auditors, working in conjunction with the ZSE
must come up with transparent and robust valuation
criteria enabling both domestic and foreign investors to
trade their shares in foreign exchange.

SHARE TRADING FOREIGN EXCHANGE DISPOSAL
TO THE RESERVE BANK

5.123
In order to transform the Stock Exchange into a
viable medium of economic development, once fully
licensed to trade in foreign exchange, the following
Exchange Control Regulations shall apply on all trades
on the ZSE conducted in foreign exchange:

(a) A financial sector stability levy of 1.5% shall be payable
to the Reserve Bank in foreign exchange; and

(b) Each seller of shares in foreign exchange shall liquidate
3.5% of proceeds to the Reserve Bank at the going interbank exchange rate.

5.124
Stock broking firms and Authorised Dealers will be
obliged to ensure that these Exchange Control
Regulations are fully complied with.

GOLD PRODUCERS

5.125
The gold sector has, over the past 18 months,
registered unprecedented declines.

5.126
In order to reverse this undesirable development, the
following framework shall apply in the marketing of
gold, with effect from 1 February, 2008;

Retention...

(a) All gold producers shall retain 92,5% of their sales in
foreign exchange as is the case with all the other
exporters;

(b) Those wishing to liquidate part of their FCAs will be free
to do so;
Payment Modalities...

(c) Each gold producer, upon delivery of produce to Fidelity
Printers, and upon the certification of the actual purified
value, will get a gold export certificate;

(d) The gold producer shall make arrangements to market
and ship its gold, which shall be consigned out of
Fidelity to the gold producer, net of the 7,5% portion to
be sold to the Reserve Bank and purification charges as
agreed with Fidelity Printers and Refiners. The exporting
of the physical gold shall, however, conform with the
usual CD1 documentation so as to avoid illegal
externalisation of the country’s resources; and

GOLD LOANS

(e) Each gold producer is free to access gold loans from
offshore markets, collateralised by physical gold as
retained, post full assaying and deduction of processing
charges by Fidelity Printers and Refiners.

GOLD SECTOR ARREARS

5.127
As Monetary Authorities, it is not our policy to
deliberately compromise the productive efficiencies in
the economy.

5.128
The outstanding arrears to gold producers are in
essence a reflection of the acute foreign exchange
shortages prevailing in the economy, aggravated by the
illegal sanctions against the country, together with the
operational constrains attendant in the hyper inflationary
environment.

5.129
In order to contribute positively towards the
recovery of the gold sector, all outstanding amounts to

the gold sector have been converted into Special
Tradable Gold-backed Foreign Exchange Bonds that
have the following features:

(a) Tenor: 12 months;

(b) Interest: 8% per annum on maturity. Interest shall be
applied in retrospect from the date the amounts fell due;

(c) The holder can sell the bonds to any interested
counterparty locally, regionally or internationally at
agreed time-to-maturity discounts; and

(d) The Reserve Bank of Zimbabwe will honour the full
principal plus interest on maturity to the holders of the
bonds on maturity.

6. EXCHANGE
CONTROL
POLICY
DEREGULATION

6.1 In his 2009 Budget presentation in Parliament
last week, the Acting Minister of Finance made
the observation that and I quote;

“The 2009 Budget revenue estimates I am
tabling ... require that we successfully implement
comprehensive and mutually reinforcing macroeconomic reforms, including the removal of all
price controls and distortions which though noble
in their intentions, have however had the opposite
and unintended consequences on the economy. It is
in the light of that I have proposed fundamental
macro and micro economic reforms encompassing
fiscal, monetary and exchange reforms, structural,
pricing as well as legal and institutional reforms

targeted at stimulating positive supply response”
end of quote.

6.2 In deregulating Zimbabwe’s Exchange control
Policies that have been in place for almost 12 years
now, we have had to recognise that the
Zimbabwean economy has in the past ten years
gone through a cycle of complex socio-economic
challenges, with a denting effect on the productive
sectors of the economy, thereby impacting
negatively on the country’s capacity to generate
foreign exchange resources.

6.3
The socio-economic imbalances have manifested
themselves in a number of areas primary of which
has been

• the persistent foreign currency shortages and
drying
foreign
exchange
reserves;
low
investment capital inflows, hyper-inflation,

• Pessimism,
short-termism,
and
rampant
speculation and corruption among other
negatives.

6.4
These negative developments, which have been
compounded by the damaging effect of the illegal
sanctions imposed on the country, have taken a grip
on the economy, halting our potential and ability to
compete effectively on the international front.

6.5
Against this plethora of challenges, a series of
homegrown monetary and fiscal initiatives have
been implemented to invigorate the country’s
productive capacity.

6.6
While a lot of success has been witnessed from
such timely and well nurtured Central Bank’s
interventionist strategies, the Zimbabwean story
still remains one of pain, with a lot of our people
being pushed into impoverishment, in a country

whose potential is sufficient to elevate the economy
to the league of successful nations.

6.7
SADC, has through a framework of Exchange
Control reforms under Article 4 on Areas and
Nature of Co-operation and Co-ordination for
Member States, sought to have member countries:
a) Liberalise current, capital and financial
account transactions,
b) Achieve
convergence
and
full
currency
convertibility amongst Member States; and
c) Improve
the
availability
of
information
regarding cross border foreign exchange flows
amongst Member States.

7 EXCHANGE
CONTROL
DEREGULATION
POLICY MEASURES

7.1
Pursuant to the above arguments for a
different approach from the past, the public is
advised that Monetary Authorities, have with
immediate effect, adopted a well sequenced
programme of liberalisation of the country’s
trade and exchange controls, beginning with
measures articulated below.


PAYMENTS OF GOODS AND SERVICES

7.2
With
immediate
effect,
individuals
and
companies are free to pay for goods and services
offshore, as well as pay for genuine external debts
without prior Exchange Control approval. It
should be noted, however, that Banks are expected
to continue recording these payments and report to
the Reserve Bank in line with the stipulated

reporting systems to be determined from time to
time.

7.3
The Exchange control arm of the Central bank
will be conducting training workshops to assist
banks in adapting to this liberalised environment.

Specifics on Current Account Transactions

7.4
Foreign Payments (Imports): As already
indicated, with immediate effect, the Reserve
Bank has decentralise the processing of import
payments applications with the delegation of the
application approval process to Authorised
Dealers. Banks are called upon to strengthen their
Exchange control units to enable swift processing
of transactions.

7.5
Exports – With immediate effect the Reserve
Bank of Zimbabwe is delegating the role of export

administration to Authorised Dealers in a gradual
manner.
This
shall
include
approval
of
applications to export, as well as the acquittal
upon receipt of payment; Exchange Control’s
central
focus
will
be
export
facilitation,
administration and foreign exchange mobilisation,
as well as exercising oversight to plug any
attempts of externalisation of resources.

7.6
These Exchange Control deregulation policy
measures are expected to result in a positive
supply response in the productive sectors of the
economy.

7.7
This, together with stepped up foreign
currency mobilization, will allow the build up
of reserves required to make the necessary
interventions in the market.

Specifics on the Capital Account

7.8
All Capital Account applications pertaining to
the receipt or payment of capital account
transfers and/or acquisition/disposal of nonfinancial assets, as well as transactions associated
with changes of ownership in the foreign
financial assets of the country, shall continue to
form the basis of specific applications to the
Exchange Control Review Committee.

7.9
The common cases to continue to be considered
by the Exchange Control Review Committee,
shall be as listed hereunder:-
• Disinvestments
• Cross border investments
• Dilutions
• Mergers and acquisitions, and
• Restructuring and rights issues.

7.10 All applications on income related transactions
such as dividend, profit and capital appreciation
proceeds remittances shall no longer require
prior Exchange Control approval.

External Loans Coordinating Committee (ELCC)

7.11 In order to debug bureaucratic hurdles associated
with the processing of external loan applications
for
both
domestic
and
foreign
investors,
Authorised Dealers shall now process loans of up
to USD5 million without prior ELCC approval.
All loans above this threshold shall continue to be
submitted to the Reserve Bank.

Manufacturing Sector

7.12 Zimbabwe prides itself with a manufacturing
sector that has state of the art equipment and
machinery which is currently lying idle largely

due to low capacity utilization resulting from
shortage of foreign currency for the importation of
raw materials.

7.13 In spite of these low capacity utilization levels,
the sector has potential for revival to become the
highest contributor towards the country’s GDP
and employment levels.

7.14 The deregulation of Exchange Controls is
expected to create a conducive platform for the
manufacturing sector to regain its vibrancy.

7.15 Manufacturing firms should leverage their idle
capacity and take it as a positive to the extent that
they can now buy and sell their products in
foreign currency.

7.16 Firms should take advantage of the deregulated
environment to approach external financiers to

source lines of credit to rehabilitate their
equipment and machinery.

7.17 As a way of giving comfort to lenders, Monetary
Authorities shall allow firms to enter into onsite
management agreements with foreign lenders
without seeking prior Exchange Control approval.

7.18 Companies are therefore urged to engage their
offshore partners in creative win-win structured
financing
arrangements
such
as
issuing
redeemable shares which have attractive coupon
rates.

7.19 In addition, Manufacturing firms can still enter
into toll manufacturing arrangements as a way of
utilizing idle capacity.

7.20
The Table below shows the gradual liberalization
strategy or the sequential approach to be adopted
in the deregulation of current account transactions.

TABLE 1: The Gradual Liberalization Strategy – A Sequential Approach

Exchange Control
Transaction Item
Current Status
New Policy Measures
Implementation Programme
Processing of Foreign
Payments
All import payments
are processed centrally
at the Reserve Bank in
terms of a Priority List
for Foreign Payments.

With immediate effect
decentralize the approval
process
for
all
applications
submitted
through
the
Batch
Application System. This
means that Authorised
Dealers
shall
effect
payments
through
corporate FCAs and the
interbank
market
purchases
without
seeking prior Exchange
Control approval.

Removal of the Priority
List

With
immediate
effect
Authorised Dealers to build
adequate
capacity
in
preparation
of
the
decentralization process.

Implement process from 1
March 2009 for transaction
limits of up to USD1, 500,000.

With immediate effect, remove
the priority list for foreign
currency payments.

From 1 October 2009 remove
limits
on
current
account
transaction to be processed by
Authorised Dealers.

Exchange Control
Transaction Item
Current Status
New Policy Measures
Implementation Programme

Corporate FCA
retention
and open market
disposal
For
all
export
proceeds,
exporters
are allowed to retain
for up to 90 days, 85
% in their FCAs for
own use and 15% is
sold as open market
disposal
at
the
prevailing
interbank
market rate.

Use of corporate FCA
funds requires prior
Exchange
Control
approval.

To
achieve
100%
retention of all export
proceeds by exporters
and retention of FCA
funds for an indefinite
period.


To allow exporters to
utilize their FCA funds
without seeking prior
Exchange
Control
approval.
With immediate effect, the
open market disposal shall be
reduced from the current 15%
to 7.5%.

With immediate effect, allow
exporters to retain their FCA
balances
for
an
indefinite
period.


Cash withdrawal from
FCAs by exporters and
Foreign Exchange
Licenced Shops
Exporters
are
not
allowed to withdraw
cash from their FCAs.

To allow limitless cash
withdrawal from FCAs
by exporters and Foreign
Exchange
Licenced
With immediate effect, there
shall be no withdrawal limits
on FCAs held by exporters and
Foreign Exchange Licenced

Exchange Control
Transaction Item
Current Status
New Policy Measures
Implementation Programme
Foreign
exchange
licenced
shops
allowed to withdraw
up to a maximum of
USD25, 000 a day
from their FCAs.
Shops.
Shops.

Exporters shall also be allowed
to withdraw any amounts of
cash from their accounts for
use in the Foreign Exchange
Licenced Shops or to fund their
cash requirements for imports.


Individual FCA
withdrawals
Individuals; NGO’s,
Embassies,
International
Organizations
Individual allowed a
maximum withdrawal
of USD5 000 from
their
FCAs
without
seeking
Exchange
Control approval.

For NGOs,
International
organizations and
Embassies, the daily
To remove withdrawal
limits on FCAs for
Individuals; NGO’s,
Embassies, International
Organizations


With immediate effect,
remove withdrawal limits on
FCAs for Individuals;NGO’s,
Embassies, International
Organizations

Exchange Control
Transaction Item
Current Status
New Policy Measures
Implementation Programme
FCA cash withdrawal
limit is USD5000.

Registration of
Agreements,
Professional;
Technical,
Management, Royalty
Agreements
These require specific
approval
for
the
registration
of
the
initial
agreement,
running for a period of
one
year.
Batch
approval then required
for payments, which
amounts have limits.
Professional
(USD500,000)
Technical
(USD500,000)
Management (2% of
turnover)
Royalty
(5%
of
turnover)


Authorised
Dealers
to
process all agreements at
bank level and register
these with Reserve Bank.
With
immediate
effect
decentralize the processing of
service agreements by allowing
banks to process all submissions
from companies.

Authorised Dealers shall be
required to register processed
agreements
with
Exchange
Control prior to the activation of
payments.

Exchange Control
Transaction Item
Current Status
New Policy Measures
Implementation Programme
Import and Export of
foreign currency cash
There is no limit on the
amount
of
foreign
currency cash that can
be
imported
on
a
person or in baggage,
the equivalent of which
can be exported if
declared on entry as
long as one qualifies
their expenditure.

On export of currency,
individuals are limited
to
a
maximum
of
USD5,000
and
USD25,000 for foreign
exchange
licenced
shops.
To
facilitate
quick
restocking of shops and
importation
of
raw
materials
by
shops,
increase the limit on cash
that can be exported with
no questions asked to
USD250,000 by residents.

To allow individuals and
corporates to deposit into
their FCAs or open new
FCAs by depositing up to
USD 1,000,000.00 on a
no questions asked basis.


With immediate effect, increase
the limit on cash that can be
exported with no questions
asked
to
USD250,000
by
residents.

With
immediate
effect,
individuals and corporates shall
be allowed to deposit up to
USD1000,000 cash into their
FCAs with no questions asked.


Exports Approvals
All exports need to be
approved by Reserve
Bank in the CEPECS
system
before
Decentralization
to
Authorized
Dealers
of
approving
all
exports.
Exchange Control will
With immediate effect Banks
shall build adequate capacity to
prepare their systems to the
policy changes.

Exchange Control
Transaction Item
Current Status
New Policy Measures
Implementation Programme
exportation.
only retain viewer ship
rights to the system.
Decentralise
the
Form
CD
approval process with effect from
March 2009.
Export of samples.
Exporters are required
to seek prior Exchange
Control
authority
before raising Forms
CD1 for export of
samples
Remove the need for prior
Exchange
Control
approval. Exports to be
monitored
through
electronic Forms CD1
By 1 March 2009
Export of machinery
for
repair
and
return
Companies
are
required to first seek
Exchange
Control
authority
prior
to
raising Forms CD1.
Remove the need for prior
Exchange
Control
approval. Exports to be
monitored
through
electronic Forms CD1
By 1 March 2009

day
Acquittal
Period
of
Export
Proceeds
All exports proceeds
should be repatriated
within 90 days or any
other
approved
period.
To completely remove
the restriction/ threshold
Maintain Acquittal Period at 90
days up to June 2009.

Increase acquittal period to 180
days by July 2009 to allow
exporters
to
compete
effectively
with
regional
exporters.

WE SHOULD NOT FEAR TO TRY NEW IDEAS...

7.21 The current economic environment, where the
transacting public has been caught up in this
foreign currency craze, there is need to reorient
the country’s trade and exchange systems in a
manner that will re-energise the market to attain
increased
production
and
foreign
currency
generation.

7.22 The gradual deregulation of Exchange Controls
shall therefore, give the country’s productive
sectors further impetus and this sequential
approach is expected to have the following
positive impact;

(a)
Increase productive efficiency through quick
turnarounds;
(b)
Improve investor confidence,

(c)
Activate the overall inflows of foreign
exchange
and
raw
materials
into
the
economy; and
(d)
Smoothen the flow of trade which is
consistent with regional integration efforts.

(e)
Reduces opportunities for money laundering
activities as there is ample time for authorities
to put measures in place.

(f)
The Extended Foreign Exchange Licenced
Shops Framework will complement the
Exchange Control Deregulation Programme
through the unfettered flow of investment
capital and free funds to finance both
domestic
production
and
consumption
expenditure.

7.23 We must, therefore, not fear to start new ideas no
matter how painful they may be to start with. Let

us encourage each other to stay the course of
productive innovation.

REVOLUTIONISING AGRICULTURE

7.24
Over the past 5 years, the Reserve Bank of Zimbabwe
has put in place and implemented various farmer-support
programmes.

7.25
These encompassed the following four main areas:
(a) Provision of agro-inputs, covering seeds, fertilizers and
agro-chemicals;

(b) Provision of agricultural equipment and implements,
under the Farm Mechanisation Programme;

(c) Provision of cattle-breeding herd; and

(d) Provision of subsidised working capital, as well as
infrastructural development finance for expansion of
operations;

7.26
As we chat the agenda for the future, guided and
motivated by the desire to promote food security in the
country, it has become imperative that farming be
recognised as a legitimate entrepreneurial line of
business.

7.27
Consistent with this, the following measures have are
being introduced with immediate effect:

AGRICULTURAL PRICING

7.28
In order to promote the viability of agricultural
operations, farmers are allowed to market and sell their
produce in foreign exchange.

7.29
All pricing distortions in agricultural produce which
previously necessitated ad-hoc price top-ups have,
therefore, been removed and farmers can now receive
import parity prices (net of transport and other
intervening charges relating to import costs).

TOBACCO AND COTTON

7.30
Consistent with the spirit of making every inch of
Zimbabwe’s farmlands real export zones, tobacco and
cotton farmers, who have traditionally not directly
benefited from the clear export nature of their produce,
will, with effect from this 2009 marketing season, be
paid in foreign exchange.

7.31
Tobacco merchants and all registered cotton-buyers
are, therefore, mandated to arrange lines of credit against
which they will pay farmers competitive prices in foreign
exchange.

FCAs FOR FARMERS

7.32
It should be noted, however that all farmers, like any
other exporter, will be expected to sell 7,5% of their
foreign exchange to the Reserve Bank at the going
competitive market determined exchange rate.

7.33
Effectively, therefore, farmers too are entitled to hold
92,5% of their foreign exchange earnings in FCAs which

they can deploy to support their future production
programmes.

INTERNATIONAL FINANCING FOR AGRICULTURE

7.34
Like any other business operation, agriculture is
amenable to smart partnerships between local land
owners and regional and international technical and
financial investors.

7.35
Accordingly, therefore, we encourage farmers to enter
into strategic agreements or partnerships with foreign
investors seeking to invest in the production of bio-fuels,
horticulture, tobacco and cotton, among several other
crops and animal husbandry lines.

7.36
We also urge seed houses and livestock breeders to
enter into smart partnerships with farmers for their
mutual benefit.

A CALL TO DEVELOPMENT PARTNERS

7.37
As Monetary Authorities, we call upon all willing
Development Partners to complement our internal efforts
aimed at promoting Food Security.

7.38
The complete removal of all distortions in the
agricultural productivity chain has opened a new era
where the majority of the people can be effectively
empowered through food security.

7.39
A robust agricultural sector is also the most effective
way
of
bringing
about
broad-based
economic
empowerment to the majority of the people, particularly
those in the rural communities.

7.40
Achieving this would be a critical milestone in the
achievement of the Millennium Development Goals
(MDGs).

INFRASTRUCTURE DEVELOPMENT

7.41
Farm capital development is an indispensable
requirement for the overall growth of productive
efficiencies in our agricultural sector.

7.42
To this end, our farmers must strategically divide such
programmes into short, medium and long-term, getting
finance from own savings, the private sector, commercial
banks and depend lesser and lesser on Government,
given the high level of past support that has been given to
the farming community.

WORKING CAPITAL FINANCE FOR FARMERS

7.43
The removal of marketing and pricing distortions in
agriculture enables farmers to be able to stand on their
own in terms of financing their operations.

7.44
Accordingly, therefore, as the liberalised environment
takes effect, farmers are called upon to plough back their
earnings into future production activities so as to enable

Government to now start concentrating on other needy
developmental areas.

7.45
Companies, commodity brokers and parastatals are
encouraged to enter into firm production contracts with
farmers, thus, providing vital working capital finance to
this critical sector of the economy.

ROLE OF THE GRAIN MARKETING BOARD (GMB)

7.46
Strictly speaking, the letter and spirit for the creation
of the GMB was and remains Government’s desire to
promote food security, particularly in respect of the
building up of strategic grain reserves to cater for the
needs of vulnerable groups in times of need.

7.47
Under the liberalised framework, and consistent with
the overall strategy of ensuring that our farmers are
running viable operations, the GMB must act as the
buyer of last resort, providing farmers with a fall-back
marketing alternative.

7.48
For the purpose of strategic reserves, the GMB should
leverage on its own internally generated revenues, as
well as the limited financial resources as would be made
available from the fiscus.

7.49
Zimbabwe’s food security situation would remain
precarious if our farmers continue to face protracted
delays in getting their payments for deliveries made to
the GMB.

ZIMRA AND PARASTATAL FOREIGN CURRENCY
ACCOUNTS

7.50
Consistent with Government’s thrust to optimise on
the productive deployment of scarce foreign exchange
resources, it has become necessary that all foreign
exchange inflows of Government be centralised.

7.51
Accordingly, therefore, all Parastatals and ZIMRA
have been directed by Treasury to open FCAs at the
Central Bank and transfer all current FCA balances to the
Reserve Bank.

7.52
This then means that all future foreign exchange
inflows to these entities must, therefore, be fully
transferred to the Central Bank accounts in the name of
the individual parastatal or ZIMRA, as the case may be.

7.53
All banking institutions are hereby therefore advised
and directed to comply with this requirement.

7.54
Any Authorised Dealer found in violation of this
requirement will put their foreign currency trading
licence at risk.

INSURANCE AND PENSION FUNDS

7.55
In order to ensure that the Insurance Industry and
Pension Funds continue to serve their intended purposes,
it is imperative that they swiftly adapt to the changing
operating environment.

7.56
The Reserve Bank stands ready to issue participants in
these sub-sectors with appropriate licences to conduct
their businesses in foreign exchange, at the same time
leaving room for those opting for local currency-based

policies and pension schemes. The Minister of Finance
was clear in his pronouncements last week when he
addressed this class of economic stakeholders.

OTHER SUPPORT MEASURES

7.57
Effectiveness of the above proposals lies in the
implementation by Government of the following
recommended support measures:

(a) A resolution of the country’s political differences by
swiftly implementing agreed negotiating positions.

(b) Adoption of a robust fiscal management framework
where Government tightens its screws on revenue
collection
and
expenditure
control.
This
should
encompass the mobilization of fiscal revenues in foreign
currency. We are pleased as Monetary Authorities by the
commitments made to the Nation in the 2009 budget by
the Minister when he addressed ZIMRA issues.

(c) The adoption of results-based management across all line
Ministries and Government Departments;

(d) Establishment
of
countrywide,
adequately
funded
Economic Crimes Courts that would swiftly deal with all
economic crimes as they arise;

(e) The passing out of stiff penalties and deterrent pieces of
legislation against economic crimes;

(f) Launching of a National Investment Promotion Strategy,
within the context of the “Zimbabwe International
Investment
Promotion
Convention”.
The
main
objective of this convention would be to expose to the
world Zimbabwe’s unique investment opportunities.

(g) Implementation of a well managed Privatization and or
Joint Venture Programme targeting our Parastatals.

(h) Finalization of the ongoing Reviews to the Mining Sector
Legislation;

(i) Adoption of a National Health and Education revival
strategy.

(j) Re-configuration of the country’s water management
policy, leading to the dissolution of ZINWA and the
return of water management to local authorities, in line
with the pronouncements in the 2009 Budget, and

(k) Swift approval of all promising investment approaches
across all sectors of the economy.

(l) Removal of price distortions in agricultural products, as
well as in all the other sectors of the economy;

7.58
We are pleased that all these key success factors were
addressed in one form or another in the National Budget
by the Minister and what is now required is speedy
implementation of the ideas and proposals so that the
benefits can begin to flow sooner rather than later.

8.
A FOCUS ON THE VULNERABLE GROUPS

8.1 Under
conditions
of
rapid
macroeconomic
transformation, where inevitably society has to adapt
to new ways of living, it is typically the case that
vulnerable members of society, including women,
children, the physically challenged, the old, the
pensioners, and those members of society with no
material means to earn themselves constant streams of
income, tend to be left out to irk a living out of
unbearable hardships.

8.2
In order to ensure that the vulnerable members of
society
are
able
to
sustain
themselves
in
the
multicurrency environment, the Reserve Bank is
deepening its Rural Banking initiative, complemented
through an integrated Micro-Finance Development
framework under which SMEs and other self-help groups
will be able to access foreign exchange loans.

8.3
The banking sector too will have a critical role to play
through the enhancement of their internal SME financing
portfolios.

8.4
The Banking Sector special foreign exchange loans
will cater for such value-creating activities as:

• Agro-value-adding projects, such as oil expressing,
peanut butter making; stock-feeds grinding; among
several others;
• Market gardening;
• Metal fabrication;
• Pottery;
• Sculpture;
• Candle making;
• Exercise books making;
• Brick making;
• Soap making;
• Scotch carts making and other welding jobs;
• Carpentry; and
• Other SMEs

8.5
Empirical evidence from such countries as India,
Indonesia, Brazil, Mexico and Chile, among several
others, clearly shows that SMEs are a viable and
bankable sector which if carefully supported can turn out
to be the engine of economic growth and development.

8.6
In a separate Supplement to this Policy Statement,
more detailed pieces of advice are given to help the
vulnerable communities sail through the multi-currency
environment.

8.7
The advise we give therein is also suitable to all those
currently employed elsewhere who can start up value
creating
projects
to
earn
foreign
exchange
for
themselves.

9.
EXTERNAL DEBT DEVELOPMENTS

9.1
The country’s external debt stock stood at US$4.69
billion as at 31 December 2008, representing a 1.8%
increase from US$4.61 billion recorded in December
2007.

9.2 Changes in the country’s external debt stock largely
reflect new debt contracted by the Government from
China to finance importation of agro-inputs, and the
capitalization of interest arrears.

Structure of Zimbabwe’s External Debt
9.3 Medium to long-term external debt continue to dominate
the external debt stock, accounting for 95.2% of the total.
The remaining 4.8% is short term debt.

9.4 Of the country’s total external debt, 95.3% is owed by
Government and parastatals while 4.7% is owed by the
private sector.

External Debt by Debtor: 31 December 2008
Government
76.9%
Private Sector
4.7%
Public
Enterprises
18.4%


External Debt by Creditor Type

9.5 About 44% of the country’s total debt is owed to
multilateral creditors, while bilateral and commercial
creditors are owed 50% and 6%, respectively.

External Debt by Creditor: 31 December 2008
Commercial
6%
Multilateral
44%
Bilatera
50%


10. DOMESTIC DEBT DEVELOPMENTS

10.1 The stock of Government domestic debt as at 31
December 2008 stood at $56.9 sextillion, a significant
increase from $390.5 million recorded in mid-August
2008.

10.2 The surge in the domestic debt position largely reflects
the increasing cost of financing Government expenditures,

not matched by the corresponding increase in revenue
inflows.

10.3 The resultant funding gap was financed by recourse to
the domestic financial market.

Domestic Debt Stock by Tenor

10.4 The contribution of medium-term debt in the portfolio,
which was about 63.5% at the beginning of 2008, is
eclipsed by 365-days treasury bills, which accounted for
99.99% of the total Government debt portfolio by the end
of December 2008.

10.5 The increase in the proportion of 365 day Treasury bills
has concentrated the maturity profile of Government debt
within a short space of time thereby exposing the portfolio
to refinancing risk.

10.6 The average duration of the portfolio is less than one
year, implying that Government rolls-over the whole
portfolio annually.

10.7 Government is urged to issue long term instruments that
help smoothen the maturity structure of its portfolio.

Domestic debt by Holder

10.8 The Monetary Banking Sector remained the major holder
of Government domestic debt at 99% of total.

10.9 Commercial banks accounted for about $424.04
quadrillion or 99.9% of the Monetary Banking Sector’s
holding of domestic debt.

Government Domestic Debt by Holder

10.10
The remaining 1% is accounted for by insurance
companies, pension funds, other financial institutions and
private investors.

10.11
Insurance companies and Pension Funds hold an
insignificant proportion of Government debt portfolio
despite existence of specific regulations stipulating that
they hold at least 35% of their assets in prescribed assets.

Compliance with Prescribed Asset Ratios by
Insurance and Pension Funds

10.12
Section 18 (2) of the Pension and Provident Funds
Act (Chapter 24:09) prescribes Insurance Companies and
Pension Funds to hold at all time at least 35% of their
assets (valued at cost) in local registered securities, loans
guaranteed by state or loans approved by a commissioner
to a local authority.

10.13
For the period ending September 2008, Pension
funds and Insurance companies held an insignificant
proportion (less than 0.0001%) of their assets in
prescribed assets.

10.14
As Monetary Authorities, we are pleased that
Government has, through the 2009 National Budget
Statement laid a solid foundation for compliance in this
area.

10.15
The collection of insurance premiums and pension
contributions in foreign exchange, supported by strict
compliance follow-ups will ensure that the Insurance and

Pension Funds industries once again become catalysts for
economic growth and development.

10.16
The Reserve Bank will fully implement the Minister
of Finance’s directive to issue appropriate foreign
exchange denominated instruments for subscription by
Insurance companies and Pension Funds as part of their
compliance with the prescribed holding requirements.

Overdraft Facility

10.17
During the review period, Government has
maintained a surplus position at the Reserve Bank of
Zimbabwe.

Short-term Trade Facilities

10.18
Over the period January 2008 to mid-November
2008, the External Loans Coordinating Committee
(ELCC) approved short-term facilities amounting to
USD920.6 million.

10.19
This compares to a total of USD 1 460.5 million
approved during the same period in 2007.

10.20
Facility utilization remained low at 23% in 2008,
compared to utilization of 30% in 2007. The total
cumulative draw downs for 2008 were USD201.8 million,
compared to USD 436.7 million for the same period in
2007.

Utilisation of ELCC Approved Facility as at MidNovember 2008

10.21
Although utilization of facilities continues to rise,
the level of utilization as a proportion of approved
facilities remains low largely due to further assessments

by lenders as well as the sanctions imposed on the
country.

11. CONCLUSION

11.1 Given the foregoing, and as I have already intimated, I
strongly believe that 2009 is the year which should mark
the turning point for our country. The unspoken voices of
Zimbabweans across the political spectrum, social strata
and all walks of life are sending a clear message that
enough is enough. The time has come for something to
now give so as to create the conditions for the
amelioration of the battered livelihoods of the people.

11.2 Going forward, I believe that whatever we do should be
premised on three fundamental values that have been
conspicuously and sadly lacking particularly on the part
of our national leadership across the board be it in
politics, business or social circles. These are the values
of hard work, honesty and sacrifice.


11.3 The time has come for all of us as Zimbabweans,
especially for those with influence and relative

economic means, to understand that extraordinary
circumstances such as the ones we face in our country
cannot be overcome without sacrifice.

11.4 Despite the fact that Zimbabweans have had to endure
biting economic sanctions and indeed despite the
widespread political challenges and economic hardships
facing the country, it is very disappointing that the one
fundamental value that is necessary to overcome such
strains is missing and that is sacrifice.

11.5 There is an irony here given that our country’s protracted
and bitter struggle for independence was won through
sacrifice. Tens of thousands of our sons and daughters
sacrificed not just for the freedoms we enjoy today but
also for many other things big and small that we take for
granted today.

11.6 It is sad to see that the legacy of sacrifice for our country,
that is the tradition of putting Zimbabwe First which
was trail-blazed by our freedom fighters, has itself been
sacrificed on the altars of personal ambition, greed,

corruption
and
wanton
irresponsibility
without
responsibility.

11.7 When times are as hard for our Nation, as they indeed
have been, it is even harder to get out of the bind unless
all of us are prepared to sacrifice for our country. The
prevailing casino notion that people can get
something for nothing is utterly reprehensible in the
extreme.

11.8 Where the spirit of sacrifice is absent, dishonesty
abounds.

11.9 Indeed, vices that are rampant in our country today such
as greed, corruption and incompetence feed on
dishonesty which is the driver of institutional and policy
failure.

11.10
One of the reasons we have people in authority
across the board who have not been living up to the
responsibility of their offices be they in the public,
parastatals or private sectors of our economy, and who
instead have been playing the blame game without

accepting responsibility at every opportunity, is because
of dishonesty.

11.11
I have no doubt that we will not be able to rebuild
our economy and indeed our country unless we once
again restore the culture of honesty in our country’s
public affairs.

11.12
Although this might not sound palatable to some,
the simple fact is that there’s just too much dishonesty
out there, especially in positions of authority in
Government, business and politics. It is not possible to
turnaround an economy in an environment in which
dishonesty is the order of the day.

11.13
If those of us with public responsibilities could care
to listen to the voices of the suffering Zimbabweans, we
would hear unmistakable and very genuine cries for hard
work and honesty.


11.14
Where there is no spirit of sacrifice and where there
is no culture of hard work and honesty, as is the case in
our country today, you are guaranteed to find generalised

laziness which has indeed taken root in our country
where people who should know better expect to get
something for nothing through schemes like the “burning
of money” and other forms of corruption.

11.15
The time has come for Zimbabweans to expect and
to demand hard work from those in public offices
whether in Government, business, politics, civil society
or churches. In that connection, we should all remember
that hard work is about deeds and not words. The
suffering masses have heard a lot high sounding words,
especially from politicians, but they have seen no action
on the ground as the situation in the country has
progressively gotten worse with few if any taking
responsibility for it.

11.16
Given the opportunity that we now have to finally
turnaround our economy this year, the policy measures I
have unveiled in this Monetary Policy Statement are the
Reserve Bank’s instalment into what I hope will be a
National Initiative to instil, promote and entrench the
critically needed values of sacrifice, honesty and hard
work among public officials and in public institutions

across the full spectrum of our society, industry and
government.

11.17
In this regard, as Monetary Authorities, we call
upon other stakeholders, particularly all political parties
to elevate their engagements from partisan considerations
into being more national in perspective in the interest of
moving the country forward.

11.18
The stalemate the country has endured for nearly a
year now has not done Zimbabwe any good at all.
Instead, it has sapped our collective energies, weakened
our spirits and demoralised our hearts.

11.19
Without the right political context, one that is
marked by active discourse and discussions on
productive and developmental issues, in other words
without a political context defined by sacrifice, honesty
and hard work, no singular efforts by one or a few
institutions or individuals will be able to overcome the
systemic financial and economic threats facing our
country today.

11.20
The tragedy is unfortunately that in the midst of the
confusion and general apprehensions caused by the
political uncertainties, self-doubt and the fear to take
decisions exposes those trying and willing to make a
positive difference through decisiveness to misplaced
vilification as has happened in the past on occasions too
many to mention.

11.21
This fact notwithstanding, I am proud to say the
Reserve Bank will continue to play its part in not only
contributing to the search for lasting policy measures for
our national economy but also in putting out any
economic fires that threaten to destroy our country,
exposing and holding to account any economic or
financial arsonist caught in action.

11.22
In the end, as the end will surely come when it is
time, my team and I know fully well that the spirit of the
country we call Zimbabwe will, when all our troubles are
gone, as gone they shall, acknowledge to many not yet
around, that my team and I were right there in action
defending and supporting her at her hour of maximum

danger when it was easier to give up than be the pillar of
support and therefore attack, that my team and I, from
the sweeper to the Board, were there besides her, at her
hour of greatest need. That is the only acknowledgement
we look forward to, long after we are gone.

Therefore, please join me in...
11.23
Laying this Monetary Policy Statement before God
and through him, I ask that the Nation be inspired into
positive action for we don’t have much time to waste on
trivialities and personality differences. We are all
Zimbabweans with one common destiny.

I thank you.


DR. G. GONO
GOVERNOR
January 2009