2012 MID-TERM
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

31 JULY 2012

TABLE OF CONTENTS


7.

LIST OF TABLES

LIST OF FIGURES

1.
INTRODUCTION AND BACKGROUND

1.1 This Monetary Policy Statement issued in terms of Section 46 of
the Reserve Bank Act (Chapter 22:15), is presented against the
background of elevated global turbulences occasioned by the Eurodebt crisis which continue to buffet developing and emerging
market economies. The slow-down in the global economy has in
turn depressed international commodity prices, thereby amplifying
external sector vulnerabilities in Zimbabwe.

1.2 These adverse global developments have combined with, tight
domestic liquidity conditions, limited access to offshore lines of
credit, frequent power outages and a huge debt overhang to take
steam off the recovery momentum gained since the adoption of
multiple currencies in 2009.

1.3 The country is also saddled with an unsustainable external debt
burden which is currently estimated at over US$10 billion. This
huge debt overhang continues to undermine the economy’s ability
to attract offshore credit at competitive rates. This adverse
development poses serious developmental challenges as credit
lines are critical in supporting industrial recapitalization, given
attendant liquidity shortages in the domestic economy.

1.4 In addition, the promulgation of economic empowerment
regulations have dented confidence in the banking sector whose
intermediary role remains integral in the attainment of fast paced
economic growth. Well-functioning financial markets are an
essential link in the transmission of monetary policy to the
economy and a critical foundation for sustained economic growth
and stability.

1.5 Notwithstanding significant strides made in stabilizing the
economy, the multiple currency era has been epitomized by
transitory deposits in the banking sector, short term loans, market
illiquidity and lack of money market instruments. Additionally, the
increase in cash based transactions, financial disintermediation,
settlement risk and asset quality vulnerability, remain worrisome.

1.6 Indiscipline in the banking sector has once again reared its ugly
head. This is evidenced by increased abuse of depositors’ funds as
well as the endemic over-stepping of operational mandates by
money lending institutions. Indeed history is repeating itself as the
current challenges faced by the banking sector are reminiscent of
the episodes experienced over the period 2003-2004.

2.
ECONOMIC DEVELOPMENTS: 2003 - 2008

Financial Sector Developments 2003 to 2004
2.1 Before I took office in December 2003, the Zimbabwean banking
sector was characterized by poor corporate governance and risk
management systems, high levels of insider trading as evidenced
by indecent loans to related parties, coupled with over indulgence
in
speculative
non-core
banking
activities,
inadequate
capitalization,
lax
prudential
supervision
and
regulatory
forbearance.

2.2 These levels of indiscipline severely undermined the financial
sector with negative effects on economic growth. Against this
background, the Reserve Bank adopted measures to minimize
moral hazard, instil market discipline and restore sanity in the
financial sector.

2.3 As a result of the Reserve Bank’s rigorous supervisory efforts,
deep seated structural and operational deficiencies in numerous
banks were exposed as liquidity and solvency challenges took their
toll on these institutions.

2.4 Consistent with the Bank’s mandate to maintain financial stability,
provide guidance to the banking sector and promote economic
activity through price and exchange rate stability, appropriate
remedial measures were instituted.

2.5 In this regard, the Reserve Bank undertook prompt supervisory
action against banking institutions, which were found to be unsafe
and unsound. Consequently, in 2004, nine financial institutions
namely Barbican Bank Limited, CFX Bank Limited, CFX
Merchant Bank, Intermarket Banking Corporation Limited,
Intermarket Building Society, Intermarket Discount House, Royal
Bank of Zimbabwe Limited, Time Bank Zimbabwe Limited and
Trust Bank Corporation Limited were placed under recuperative
curatorship.

2.6 In addition, Barbican Asset Management, Century Discount House
and Rapid Discount House were placed under liquidation in the
same year. First National Building Society was subsequently
placed under final liquidation in 2005.

2.7 In view of the problems that affected the banking sector, the
Reserve Bank of Zimbabwe came up with various measures,
including, the Troubled Bank Resolution Framework (TBRF). The

TBRF was established in January 2005 to effectively deal with
problem banks.

2.8 Essentially, the Troubled Financial Institutions (Resolution) Act
which was promulgated in January 2005 established the legal
framework in terms of which the Troubled Bank Resolution
Framework and the Zimbabwe Allied Banking Group (ZABG)
were operationalized.

2.9 The establishment of the Zimbabwe Allied Banking Group was an
important step in addressing financial stability and safeguarding
depositors’ funds. It marked the beginning of a new era in the
history of the Zimbabwean financial and banking sector.

2.10 The Zimbabwe Allied Banking Group (ZABG) was created as a
special purpose vehicle which facilitated the conversion of assets
in the troubled banks into equity. Troubled banks that qualified
were then converted into a single entity known as ZABG. The
creation of this new institution was meant to avoid the reputation
risk which the collapsed banks faced.

2.11 These strategies were to a greater extent, instrumental in restoring
financial stability in the country. The following banks were
amalgamated into ZABG:

i.
Royal Banking Corporation Limited;
ii.
Trust Banking Corporation Limited; and
iii.
Barbican Banking Corporation Limited.

Intervention Measures

2.12 Against
the
background
of
deteriorating
macroeconomic
conditions, typified by declining export performance, and
dwindling foreign exchange reserves, the country defaulted on
external payments to both bilateral and multilateral creditors since
the turn of the century.

2.13 Consequently, severe remedial measures were adopted culminating
in the suspension of balance of payments, budgetary and donor
support to Zimbabwe. Notably, disbursements on on-going
projects in the education, health, transport, agriculture, water and
sanitation were suspended immediately.

Figure 1: Disbursements by Multilateral Financial Institutions
(US$M)


2.14 Within this context, the Government of Zimbabwe failed to meet
fiscal obligations from budgetary allocations which were severely
eroded by rising inflation. As such, the financing of recurrent and
capital expenditures presented serious challenges to Government.

2.15 These negative developments threatened to bring the country’s
social service delivery system and the economy at large to a
complete halt, thereby further impoverishing the Zimbabwean
people.

2.16 It is against this background that Government stepped in to save
the situation through various interventions by the Reserve Bank of
Zimbabwe.

2.17 These interventions which were exactly in the mould of bail out
packages and quantitative easing measures currently instituted in
the US and the EU, were geared at evoking a positive supply
response and arrest further economic decline.

2.18 Additional interventions targeted the education and health sector
to ensure the smooth running of examinations and the provision of
ambulances to major referral hospitals.

2.19 Other agricultural sector interventions supported winter wheat
production, irrigation rehabilitation, acquisition of agricultural
equipment, sorghum production, and the summer crop program.

2.20 Despite
numerous
intervention
measures
undertaken
by
Government through the Reserve Bank of Zimbabwe, economic
activity continued to decline progressively with inflation peaking
at 231 million percent by July 2008. Other challenges that affected
the economy include the following:


Frequent power outages;

Cash shortages;

Acute foreign currency shortages;

Skills flight;

Vibrant parallel market for goods and foreign exchange;

Erratic fuel supplies;

Endemic speculative and rent seeking behaviour; and

Rapid rise in production costs.

2.21 In addition to this compendium of challenges, the value of the local
currency
declined
precipitously
as
speculative
activities
intensified.
Against
this
background,
transactions
were
increasingly undertaken in foreign currencies which were more
stable and predictable.

3.
CURRENT CHALLENGES FACING THE ECONOMY

3.1. Despite significant strides attained by the Zimbabwean economy
under the multiple currency system, new challenges have emerged
to undermine its efficacy. There are similarities in challenges
between the period 2003 to 2008 and the period 2009 to date. The
following are the major challenges that the economy is currently
facing:

i.
Policy reversals and inconsistencies;

ii.
Indiscipline in the financial sector;
iii.
Deterioration of infrastructure.
iv.
Adverse global economic developments;
v.
Difficult external sector position;
vi.
Persistently recurrent liquidity challenges;
vii.
The negative effect of sanctions;
viii.
Widespread closure of companies; and
ix.
Limited fiscal space.

3.2. Both periods (pre and post multicurrency system) experienced the
following challenges; lack of fiscal space, liquidity shortages,
indiscipline in the banking sector, and frequent power outages. The
adverse effects of the global economic crisis are currently affecting
Zimbabwe.

Global Economic Developments

3.3. The global economy, which has been showing embryonic recovery
signs in the first quarter of 2012, is facing renewed threats from
events in Europe coupled with geopolitical uncertainties affecting
oil production in the Middle East.

3.4. Against the background of these elevated vulnerabilities, global
economic activity is projected to decelerate from 3.9% in 2011 to
an estimated 3.5% in 2012, before rebounding to 3.9% in 2013.

Table 1: Summary of World Output

2012F
2013F
World Output

Advanced Economies

U.S

Central & Eastern Europe

Euro Area

Emerging/Developing Countries

Latin America & Caribbean

Sub‐Saharan Africa


Source: IMF, World Economic Outlook (July 2012)

3.5. The worsening Euro-zone debt crisis, high government debt and
budget deficit levels in the United States have occasioned
concomitant economic slow downs in China and India, the world’s
largest commodity consumers.

3.6. Against this background, Sub-Saharan Africa is projected to
register a modest growth of 5.4% in 2012, some marginal

improvement from the 5.2% registered in 2011. This reflects
limited exposure of countries in the region to the spill-over effects
of the Euro zone crisis. Deterioration in global macroeconomic
conditions continues to depress international commodity prices.

International Commodity Price Developments


3.7. Deceleration of economic activity in China and India, the largest
consumers of commodities, has dampened commodity prices as
attested to by the commodity price deflation experienced in the
first half of 2012.

3.8. Metal prices, which registered considerable gains during the first
quarter of 2012, decelerated during the second quarter of the year
below their end 2011 levels. The decline in metal prices was
particularly sharp in May 2012 as the debt crisis in Europe
intensified and China’s growth slowed down markedly.

In consequence, the prices for gold and platinum retreated sharply
on subdued global demand. This development is expected to
negatively impact on the country’s export earnings and the external
sector position at large.

3.9. Figure 2 and 3 below shows international commodity prices for
gold, platinum, nickel and copper.

Figure 2: International Commodity Prices, Gold and Platinum


Source: BBC, KITCO

3.10. Similarly, nickel prices receded to just above US$16 100 per tonne
by mid July 2012 due to slackening demand for stainless steel
products and rapid restart of nickel pig iron (NPI) production in
China which accounts for 40% of global stainless steel production.

Figure 3: International Prices for Copper and Nickel

Source: BBC, KITCO

3.11. Oil prices which initially trended upwards in the first quarter of
2012, from US$104 per barrel in 2011 to nearly US$126 per barrel
in March 2012, receded back to just above US$100 per barrel by
mid July 2012.

Figure 4: International Oil Prices (US$/Barrel)


Source: BBC, KITCO

3.12. World oil demand which increased by 0.7% in 2011 remained
weak during the first quarter of 2012 partly due to a mild winter in
the northern hemisphere. Supply side concerns, notably the loss in
non-OPEC production due to geo-political and technical problems,
including tensions between Iran and the West over its nuclear
program, have exerted renewed upward pressure on oil prices.

Balance of Payments Developments

3.13. The country’s balance of payments position is projected to remain
under considerable pressure in 2012, notwithstanding improved
export performance.

3.14. Exports are expected to register a 13.2% growth from US$4,496
million in 2011 to US$5,090 million in 2012 (or 45% of GDP).
Improved export performance in 2011 and 2012 benefited from
increased gold, diamond and platinum production, as well as
increased capacity utilization realized by major ferro-alloys
producers.

3.15. Additionally, increased tobacco exports, continue to spur
agricultural export growth. Production shortfalls in the major
tobacco producing countries are expected to spur international
tobacco prices, much to the benefit of tobacco exporting countries
such as Zimbabwe.

3.16. The country, however, continues to absorb disproportionately huge
imports to bridge attendant supply gaps in the economy. Against
this background, the country’s imports grew significantly by
46.5% from US$5,162 million in 2010 to US$7,562 million in

2011. Growing import dependence has gained prominence on the
backdrop of low industrial capacity utilization which is currently
estimated at around 50% in 2011.

3.17. Similarly, the country’s import bill is projected to rise further by
8% to US$8, 215 million in 2012 (or 75% of GDP) on the back of
drought induced food imports. This coupled with net service and
income outflows will culminate in the incurrence of an
unsustainable current account deficit projected at US$3.1 billion in
2012 (or 26% of GDP).

3.18. Successive capital account surpluses amounting to US$1,561
million realized for 2011 and US$2,483 million projected for 2012
remain inadequate to finance respective current account deficits.
Consequently, these current and capital account developments
culminated in the incurrence of an overall balance of payments
deficit amounting to US$593.3 million in 2011 and a further deficit
of US$638.7 million projected for 2012 as shown in figure 6
below.

3.19. The country continues to finance balance of payments deficits
through the accumulation of external payment arrears, a
development which is indicative of an unsustainable external
sector position.

Figure 5 : Balance of Payment Position (US$M)

Source: Reserve Bank of Zimbabwe and Zimstats

3.20. Against the background of relatively subdued long term capital
inflows and perpetual reserve inadequacy, these adverse balance of
payments developments will have severe haemorrhaging effects on
the country’s foreign exchange resources and accentuate attendant
liquidity shortages, particularly in the current multiple currency
system. A difficult balance of payments position drains the
domestic economy of the much-needed foreign exchange and
curtails deposit and credit growth.

Liquidity Shortages
3.21. Persistent liquidity shortages in the economy continue to
undermine the country’s ability to maintain and sustain the robust
economic growth achieved since the introduction of the
multicurrency system.
Sources of Liquidity
3.22. It is noteworthy that, within the auspices of a multiple currency
regime, where the Reserve Bank does not issue currency, liquidity
sources are limited. In this respect, the country’s liquidity situation
is contingent upon developments on the external sector front.

3.23. Under the multiple currency system major sources of liquidity
include:

i.
Export earnings
ii.
Diaspora remittances;
iii.
Offshore credit lines;
iv.
Foreign direct investment inflows;
v.
Portfolio investment inflows; and
vi.
Confidence in the economy

3.24. Efforts to improve the country’s liquidity conditions should thus
place great prominence on improving confidence in the banking
sector.

3.25. Improved confidence is usually accompanied by increased
investment inflows which in turn support key productive and
export sectors. This will result in improved liquidity conditions
which support sustained growth.

Banking Sector Challenges
3.26. In the wake of resurgent financial sector indiscipline, Interfin Bank
was placed under recuperative curatorship on 11 June 2012 for a
period of six months.

3.27. Interfin Bank Limited was not in a safe and sound financial
condition,
due
to
inadequate
capitalization,
concentrated
shareholding and abuse of corporate structures, high level of nonperforming insider and related party exposures, chronic liquidity
and income generation challenges, as well as violation of banking
laws and regulations.

3.28. On the other hand, Genesis Investment Bank voluntarily
surrendered its licence in line with section 14(4) of the Banking

Act [Chapter 24:20]. This followed its failure to meet the
minimum capital requirements.

3.29. The governance malpractices that have also affected Money
lending institutions, saw operating licenses for two institutions
notably, McDowell’s International and All Angels being cancelled.

Architecture of the Banking Sector

3.30. As at 30 June 2012, the number of operating banking institutions
(including POSB) declined to 25 from 26 following the voluntary
surrender of a banking license by Genesis Investment Bank. One
merchant bank converted into a commercial bank on 15 May 2012.

3.31. At the same date, there were 16 asset management companies and
172 microfinance institutions under the supervision of the Reserve
Bank. The structure of the banking sector is shown in the Table 2
below.

Table 2: Structure of the Banking sector


Capital Bank Limited (formerly ReNaissance Merchant Bank
Limited)

3.32. It is heartening to note that the successful recapitalisation of
ReNaissance Merchant Bank by the National Social Security
Authority (NSSA), resulted in the Reserve Bank uplifting
curatorship of ReNaissance Merchant Bank on 2 March 2012.

Type of institution
Number
Commercial Banks

Merchant Banks

Building Societies

Savings Bank

Finance Houses

Discount Houses

Total Banking Institutions

Asset Management Companies

Microfinance institutions

3.33. As part of the bank’s turnaround and re-branding strategy, the
institution’s name was changed from ReNaissance Merchant Bank
Limited to Capital Bank Corporation Limited.

Ecobank Zimbabwe Limited

3.34. Ecobank Zimbabwe Limited was granted authority to commence
commercial banking business effective 15 May 2012, in terms of
Section 16 of the Banking Act [Chapter 24:20]. This follows the
institution's compliance with the minimum regulatory capital
requirement of $12.5 million for commercial banks.

Metbank Limited (formerly Metropolitan Bank)

3.35. The Reserve Bank approved the name change from Metropolitan
Bank Limited to Metbank Limited with effect from 23 March
2012.

Microfinance and Money Lending Institutions

3.36. As Monetary Authorities, we note with concern numerous
malpractices
by
microfinance
institutions
ranging
from
engagement in non-permissible activities, inadequate disclosure of
business conditions, usurious lending rates of as high as 50% per

month or 600% per annum simple interest (or 12,874.5%
compounded) and abusive debt collection practices including
disposal of pledged collateral without following due legal
processes.

3.37. In addition, we have established cases of some microfinance and
money lending institutions that are illegally taking deposits from
unsuspecting members of the public.

3.38. As I stated in my Circular to Money lending and Microfinance and
Institutions dated 4 June 2012, failure by money lending and
microfinance to comply with laws and regulations governing the
conduct of their business as stipulated by the Reserve Bank, will
lead to the imposition of appropriate supervisory action, including
cancellation of operating licences. To date, Reserve Bank has
cancelled licenses for two Money lending institutions namely
McDowell’s International and All Angels.

3.39. In this regard, the Reserve Bank will intensify onsite visits to all
banks and money lending institutions in order to reduce incidences
of unscrupulous behaviour and governance malpractices.

i.

INTEREST RATE SPREAD AND HIGH BANK CHARGES


3.40. On the back of varied sources of credit lines secured on and
offshore by banks, significant discrepancies in deposit and lending
rates have characterized the multiple currency era.

3.41. In this regard, large banks that have a wide deposit base have been
quoting deposit rates ranging from 0.15% to 6%, while on the
other hand smaller banks have been quoting deposit rates ranging
from 8% to 16% in order to attract deposits.

3.42. Compared to deposit rates, lending rates which were quoted by
banks have always been high in the multicurrency era, ranging
between 5% and 35% for both individual and corporate
borrowings. The weighted average lending rate has ranged
between 14% and 20% during the last four months.

3.43. The low deposit rates coupled with high bank charges are not
conducive to attracting savings. On the other hand, the relatively
high lending rates discourage borrowing by the productive sectors,
thereby inhibiting the growth of the economy.

3.44. It has been ascertained that for a person earning around US$200
per month, and making two withdrawals from the bank incurs bank

charges amounting to 15% of the total deposit, which is a high tax
in depositors.

Figure 6: Lending and Savings Rates

4.
MONETARY AND FINANCIAL SECTOR DEVELOPMENTS

Total Banking Sector Assets

4.1. Despite adverse balance of payments developments, total banking
sector assets grew by 17.3% from $4.74 billion as at 31 December
2011 to $5.56 billion as at 30 June 2012. The sector’s assets
mainly comprised of loans and advances (53.41%), fixed assets
(9.42%), balances with the Reserve Bank (7.20%) and balances
with foreign banking institutions (6.98%).

Total Banking Sector Deposits

4.2. The country’s deposits continue to be largely of a short term
nature. As at 30 June 2012, growth in money supply defined as
total banking sector deposits including interbank deposits were
$4.02 billion1, representing a 31.8% increase from $3.05 billion as
at 31 December 2011.

4.3. On an annual basis, the growth in deposits has, however, slowed
down, recording a growth of 16.7% in June 2012 compared to a
growth of 56.5% over the same period last year.

4.4. Growth in banking sector deposits was largely driven by annual
increases in time deposits of over 30-day, 96.18%; under 30-day,
13.54%.

4.5. The significant increase in time deposits partially reflects the
shifting of economic agents from non-interest earning balances to
interest earning deposits. This is because banks have been quoting
demand and savings rates that are below 3.8% whilst time deposits
attracted rates quoted were as high as 24%.


1 When excluding the interbank deposits and offshore lines of credit the figure reduces to USD3.59 billion.

4.6. Despite the higher growth in time deposits, the deposit base
continues to be dominated by transitory deposits, a development
which negatively impacts on the intermediary role of banks.
Naturally, short term deposits cannot support industry as it requires
long term financing (of 2-5 years), to recapitalize their operations.

Total Banking Sector Loans & Advances

4.7. Against the background of a short term deposit base coupled with
limited access to external lines of credit as well as high liquidity
risks, lending by banks has been largely short term in nature. This
has deprived the economy of capital intensive projects which are
imperative for sustainable economic growth.

4.8. In concomitance with expansion in deposits, banking sector loans
and advances amounted to $3.27 billion as at 30 June 2012,
representing a growth of 18.5% from $2.76 billion as at 31
December 2011.

4.9. Loans and advances were dominated by commercial banks with a
market share of 82.92% of total loans, amounting to $2,712.07
million, and building societies with a market share of 10.59%
amounting to $346.21 million.

Sectoral Distribution of Credit

4.10. The banking sector has continued to provide support to various
sectors of the economy and households. As at 30 June 2012, the
sectoral distribution of credit is depicted in the table below:

Table 3: Sectoral Distribution of Credit (%)
Sector
30 Jun 2011 30 Sept 2011
31 Dec 2011
30 Jun 2012
Services

Individuals

Manufacturing

Agriculture

Distribution

Communication

Mining

Construction

Financial Firms

Transport

Total


4.11. On the backdrop of short term financing, loans and advances from
the banking sector largely financed recurrent expenditures and
private consumption.

4.12. It is worrisome that lending to individuals, which presumably is for
consumption expenditure, has been rising exponentially from 8.6%
of total credit in June 2011, to 18% in June 2012. The rise of loans
to individuals is at the expense of agriculture, which has declined
from 18.6% to 15% and distribution which also declined from 13%
to 9.4% in June 2011 to June 2012, respectively.

4.13. The short term lending, coupled with subdued capital inflows, has
deprived the economy of investments in capital intensive projects
which are imperative for sustainable economic growth.

MONEY MARKET DEVELOPMENTS

4.14. The Bank has been advocating for the issuance of Government
paper in the form of Treasury Bills, which can also be used as
collateral security in the inter-bank market as well as the lender of
last resort function.

4.15. The lack of investment instruments on the domestic money market
has forced banks to hold significant balances either in cash or
RTGS accounts. Reflecting the lack of activity in the money
market, surpluses in the form of idle RTGS balances rose from
US$120 million, to US$243 million and US$300 million in
January February and June 2012, respectively.

4.16. Against this background, the July 2012 Mid Term Fiscal Policy
Review Statement announcement of Government’s intention to
issue short dated instruments is a bold step in the right direction.
The issuance of Government paper will resuscitate the nonfunctional money market and re-activate the interbank market
while at the same time resolving the Government’s seasonal
cashflow challenges.

4.17. In the same vein, Government converted the outstanding statutory
reserve obligations of the Reserve Bank, amounting to US$83.4
million, into stocks of 2, 3 and 4 years, at coupon rates of 2.5%,
3% and 3.5%, respectively on 1 March 2012. The first coupon
payment on the Government stocks amounting to US$1.268
million was made on 2 July, 2012.

Lender of Last Resort

4.18. A functioning lender of last resort (LOLR) facility plays a pivotal
role in the provision of liquidity to banks experiencing short term
liquidity challenges.

4.19. As such, the Honourable Minister of Finance in the July 2012 Mid
Term Fiscal Review Statement announced that Government
approved the establishment of a US$150 million Lender of Last

Resort Fund, under which, private investors are expected to
contribute US$120 million.

4.20. The Reserve Bank recognises the progress that has been made in
laying the groundwork for the reactivation of the LOLR facility in
view of short term liquidity challenges being faced by some banks.
In addition, the simultaneous issuance of the short term
instruments will assist in the proper functioning of the facility,
whilst acting as guidelines on the interest rate structure in the
economy.

NATIONAL PAYMENTS SYSTEMS

4.21. The national payment systems continued to exhibit stability and
resilience, during the period under review. The Bank’s goal is to
ensure that payment systems are available without interruption,
meet all users' needs, and operate at minimum risk and reasonable
cost.

4.22. As such, the Central Bank will continue to deepen its role through
increased monitoring and collaboration with various stakeholders
in order to maintain safety, soundness and stability in of the
payment systems.

4.23. Notably, all payment streams registered increases during the first
half of 2012 in both volume and value terms. Participation in the
different payment streams continued to increase as financial
institutions seek to provide various payment alternatives to the
transacting public.


Risk Management

4.24. As overseers of payment systems, the Reserve Bank encourages
financial institutions to continue developing risk management
processes that are rigorous and comprehensive to respond to
current and future risks brought about by the rapid pace of
technological innovations.


Promotion of Electronic Means of Payments

4.25. The Central Bank remains concerned with the high usage of cash
in the economy and will continue to collaborate with various
stakeholders to promote the use of other forms of payment,
especially cards.

4.26. While we acknowledge the efforts made so far in the adoption of
card payment streams, mobile and internet banking by the financial

sector players and relevant stakeholders, there is still scope to
increase the momentum.

4.27. In this regard, all the key sectors of the economy are encouraged to
embrace electronic payment mechanisms so as to limit the use of
cash which is inefficient, risky and costly to the country.

RTGS Transactional Activities

4.28. Total RTGS system values amounted to US$19.8 billion for the
period January to June 2012 while in volume terms, 1.15 million
transactions were registered.

4.29. Total monthly RTGS system transaction values amounted to
US$3.4 billion for June 2012, an increase of 20% from US$2.8
billion recorded in June 2011.

OTHER ECONOMIC CHALLENGES
Narrow Export Base
4.30. The country’s export earnings mainly composed of mineral exports
which constitute about 60% of total exports in 2012. Of these
minerals, more than 50% are from Platinum Group of Metals

(PGMs) which are mainly produced by Zimplats, a subsidiary of
Implats of South Africa.

4.31. This phenomenon exposes the country to disturbances in the major
exporting companies or international commodity prices which will
have a devastating effect on the country’s export earnings and
financial inflows.

4.32. Against this background, there is need to adopt deliberate policy
measures that promote diversification of the country’s export
basket and shed off commodity dependence in order to broaden the
country’s export base.
Policy Reversals and Inconsistencies
4.33. Perennial policy reversals and inconsistencies continue to pose a
major threat to the achievement of solid, sustained and balanced
economic growth in the country. Mixed signals have emerged
within Government with negative effects on corporates,
households and the investor community at large.

4.34. For instance, lack of clarity on major policy issues such as the
Indigenization and Empowerment Act and varied views over its
implementation have sapped confidence in the economy.

Sanctions

4.35. Sanctions imposed on Zimbabwe continue to impede critical
capital inflows such as aid, short and long term loans, thus,
compounding the already precarious liquidity situation in the
country. The sanctions are also impeding access to commercial and
trade finance, as both Government and private sector’s access to
foreign loans is curtailed.

4.36. In addition, the existence of sanctions continues to portray an
artificially bad country image which attracts high risk premium on
offshore lines of credit, and eventually scare away potential
creditors, as they anticipate a credit squeeze in the future.

Informalization of the Economy
4.37. The progressive contraction of the Zimbabwean economy in the
new millennium occasioned the emergence of a vibrant informal
sector which acted as a safety net for redundant labour. The closure
of companies which intensified under the multiple currency system
gave rise to a vibrant informal sector.

4.38. Regrettably, an estimated US$2 billion is currently circulating
outside the formal banking system to finance transactions in the
informal sector. As a result, banks’ capacity to mobilize investible

funds for deployment to key productive sectors has been severely
compromised.

4.39. In addition, a large informal sector prejudices Government of tax
revenues, thereby undermining the potency of fiscal policy, the
only effective macroeconomic policy tool under the multiple
currency system.

Capitalization of the Reserve Bank
4.40. The Central Bank is currently unable to perform its mandated role
under the multicurrency system due to inadequate capital. As such,
Treasury should recapitalize the Central Bank. The resource
constraints currently affecting fiscal performance, however,
undermines the Government’s ability to adequately fund central
bank operations.
Lack of Stimulus Package and Seignorage
4.41. Zimbabwe is operating a cash budget system in which Government
expenditure is strictly aligned with tax revenues generated. In the
event of any crisis occasioned by exogenous shocks, the country
lacks proactive mechanisms to deal with the crisis on the back of
limited fiscal space. Other countries are able to implement stimulus
packages in order to mitigate the effects of the crisis.

4.42. Government’s options in a multicurrency environment to deal with
shocks are confined to external borrowing. This option is,
however, currently not applicable due to lack of budgetary and
balance of payments support on account of accumulated external
payment arrears.
Power Outages
4.43. Persistent power outages continue to have serious repercussions on
efforts to achieve sustainable economic growth in the medium to
long term. The reliable supply of power is supportive of unfettered
industrial production which is integral in efforts to improve
capacity utilization and close attendant supply gaps in the
economy.

4.44. In the past decade, domestic power generation capacity has fallen
far below demand as a result of lack of maintenance of aging
generation plants, and transmission and distribution facilities, as
well as disruptions in the supply of coal for generation. Only 1,000
Megawatts out of the 2,000 Megawatts of installed generation
capacity is currently available, resulting in intermittent power
supplies.

Lack of Competitiveness of Zimbabwe’s Products
4.45. Over the past decade, Zimbabwe’s products significantly lost
competitiveness in the domestic, regional and international
markets. This negative development is largely attributed to
relatively high production.

4.46. The erratic supply of water and electricity ultimately translates into
high production costs, resulting in delivery delays and lose of
export competitiveness.

4.47. Some producers are forced to utilize generators to power their
plant operations. As a consequence, production costs incurred ends
up more than trebling when compared to costs otherwise incurred
when power supplies are reliable.

4.48. Zimbabwe’s competitors notably, South Africa also produces
Genetically Modified (GMO) at low costs compared to
Zimbabwean products. Some of these products find their way onto
the Zimbabwean market, thereby, out-competing domestically
produced goods.

4.49. Under the General Import and Export License, all finished
products can be imported including tomatoes, onions, apples,

oranges, chicken and milk products (the list is endless). It is
against this background that Zimbabwe imported finished products
to the tune of US$5,419.2 million in 2011 compared to only
US$1,308.7 million in 1999.

4.50. In consequence, Zimbabwean products have been crowded out
with dampening effects on efforts to rejuvenate the country’s
industrial production. It is against this background that significant
de-industrialization has been experienced with the manufacturing
sector’s contribution to GDP contracting significantly from 25% in
the 1990s to current levels of 15%.

4.51. As a result, a number of companies are closing down resulting in
increased unemployment. The most affected sub-sectors are
clothing and footwear, transport and equipment and chemicals.

4.52. Only a few sub-sectors such as drinks, tobacco and beverages,
communication and financial services, are performing relatively
well.

4.53. At the moment, our retail shops are filled with finished goods
imported from South Africa and beyond. These are goods which
we used to produce in yesteryears and export to the region and
other parts of the world.

Lack of Confidence

4.54. The freezing of Zim-dollar deposits eroded the transacting public’s
confidence in the banking system. Accordingly, there is an
unusually strong preference to hold and transact in cash instead of
making use of the banking system.

4.55. This has combined with the greater informalization of the
Zimbabwean economy to keep inordinate amounts of cash
circulating outside the banking system. Against this background,
the critical intermediary role played by banks in allocating surplus
funds to deficit units of the economy has been adversely affected.

4.56. The exorbitant banks charges currently levied by banks as well as
negligible interest rates offered on deposits have also conspired to
severely dent the confidence of the banking public.

Gold Leakages

4.57. The liberalization of gold marketing in March 2009, has partly
contributed to the current rampant smuggling of gold in the
country, which is prejudicing the government of significant
revenue inflows and liquidity to the formal banking sector.

4.58. Zimbabwean gold deposits are on the surface which allows easy
extraction and therefore attracts many players who do not need
major capital equipment to extract. As a result many players both
legal and illegal are extracting the metal.

5.
POLICY ADVICE

INDIGENIZATION IN THE BANKING INDUSTRY

5.1. The
implementation
of
Indigenization
and
Economic
Empowerment regulations in the banking sector should be done in
a manner that preserves confidence since any adverse
developments in the banking sector could grind economic activity
to a screeching halt.

5.2. This is particularly so, given that regional and international banks
in the local banking industry play a pivotal role in providing the
vital link between the domestic economy and the international
community,
particularly
through
correspondent
banking
relationships.
5.3. This notwithstanding, we commend Government’s initiatives to reengage in view of the Indigenization and Economic Empowerment
regulations as espoused in the July 2012 Mid- Term Fiscal Policy
Review. As such, we are gratified to note that some aspects of the

Indigenization and Economic Empowerment Regulations are
receiving attention with a view to harmonize and fine- tune
pertinent issues.

5.4. As such, the implementation of the Indigenization and Economic
Empowerment provisions cannot be done in isolation of the
Banking Act and Regulations, the Reserve Bank of Zimbabwe Act,
the Exchange Control Act and Regulations, the Companies Act,
Zimbabwe Investment Authority (ZIA) Act, Mines and Minerals
Act, and all other already exisiting legal instruments.

Multi-Disciplinary Financial Stability Committee

5.5. Consistent with the financial stability thrust and the COMESA
Framework for Assessing and Maintaining Financial Stability,
developed in 2009, the Reserve Bank, the Insurance and Pensions
Commission (IPEC), the Securities Commission (SEC), and the
Deposit Protection Board (DPB) constituted a Multi-disciplinary
Financial Stability Committee.

5.6. We are pleased to advise that the inaugural Multi-disciplinary
Financial Stability Committee meeting was held on 24 April 2012.
Two sub-committees, namely, Technical Committee for Financial

Stability and Supervisory and Regulatory Co-operation, were
constituted accordingly.

5.7. Going forward the committee shall:

ii.
Facilitate early identification of sources of risk (to stability) and of
potential vulnerabilities that could threaten financial stability;
iii.
Promote rigorous, accurate and systematic assessment of the
present degree of financial stability as well as the outlook ahead;
iv.
Evaluate the ability of the financial system to absorb shocks
should identified risks materialize;
v.
Provide the lead time for appropriate policy responses; and
vi.
Promote adoption of preventive and timely remedial policies
and/or restore the system to stability when the preventive and
remedial measures fail.

ADVICE ON BALANCE OF PAYMENTS CHALLENGES

5.8. The adoption of ZAADDS is a bold stride in the amicable
resolution of the country’s debt burden. This notwithstanding,
there is need to expedite the implementation of ZAADDS in order
to unlock credit lines critical for the rejuvenation of the
Zimbabwean economy.

5.9. Within this context, the Reserve Bank keenly awaits the outcome
of recent engagements with the IMF on the possibility of
commencing a Staff Monitored Program (SMP).

5.10. The resolution of debt under ZAADDS, the adoption of an SMP
and sustained macroeconomic stability would allow offshore
financiers to fund medium to long term projects, particularly to
the export sectors. This will result in increased foreign exchange
inflows into the country, thereby improving the country’s balance
of payments position and accelerate economic recovery.

6.
MONETARY POLICY MEASURES

BANK CHARGES AND INTEREST RATES

6.1. Cognisant of the need to balance viability of the banking sector
and accessibility to affordable banking services, the Reserve Bank
has over the years advocated and adopted policies that promote
market determined bank charges and interest rates for the sector’s
products and services.

6.2. The Reserve Bank, however, continues to receive complaints from
the transacting public regarding the high service charges and

lending rates being levied by banking institutions and low interest
rates payable on savings and current accounts.

6.3. As Monetary Authorities, we urge banks to rationalize their
interest rate structures and bank charges by reducing lending rates
and bank charges so as to encourage the banking public to
increase deposits.

6.4. In the absence of self-regulation, Authorities will be left with no
alternative but to take appropriate action on the banks ignoring
this warning.

6.5. Against this background, the Reserve Bank in collaboration with
the Bankers Association of Zimbabwe will be developing a
standardised format of disclosure requirements for bank charges
and interest rates.

6.6. Banking institutions shall be required to publish their charges in
the prescribed disclosure format on a quarterly basis, and a
consolidated report of banking institutions shall be published on
the Reserve Bank website on a quarterly basis. This would
promote comparability and reduce information asymmetry.

BANKING SECTOR CONSOLIDATIONS

6.7. The Reserve Bank is on record advocating that banking institutions
with unrealistic chances of meeting the capital requirements
should opt for merger and/or acquisitions by a healthy bank,
failing which, appropriate supervisory action will be taken in
terms of the Troubled Bank and Insolvent Resolution Framework.

6.8. A fragmented banking system characterized by numerous weak
and undercapitalized banks will not only increase the vulnerability
of the financial system but also of the economy as a whole.

6.9. As Monetary Authorities, we note that some banking institutions
are oblivious of recent global trends towards bank consolidations
spurred by increased globalization, technological advances,
liberalization and competition.

6.10. Against the background of capital inadequacies, small institutions
are using depositors’ funds to finance branch expansions and meet
operating costs.

6.11. Mergers and acquisitions have become a major strategic option for
banking, aimed at entrenching a strong, efficient and diversified
financial sector that ensures the safety of depositors’ funds, plays

an active developmental role in the economy, and competes
effectively in the global financial system.

NEW CAPITAL REQUIREMENTS

6.12. The Reserve Bank is increasing the minimum capital requirements
of banking institutions as follows:

Table 4: New Capital Requirements
Category
Current Minimum
Capital
New Minimum Capital
Required
Commercial Banks
$12.5 million
$100 million
Merchant Banks
$10 million
$100 million
Building Societies
$10 million
$80 million
Finance Houses
$7.5 million
$60 million
Discount Houses
$7.5 million
$60 million
Microfinance
Banks
$1 million
$5 million

6.13. The Reserve Bank is proposing a phased plan for enforcement of
capital requirements for all banking institutions as follows:
i.
Comply with 25% of the prescribed minimum equity capital for its

class of banking business by 31 December 2012;
ii.
Comply with 50% of the prescribed minimum equity capital for its
class of banking business by 30 June 2013;
iii.
Comply with 75% of the prescribed minimum equity capital for its
class of banking business by 31 December 2013; and
iv.
Comply with 100% of the prescribed minimum equity capital for
its class of banking business by 30 June 2014.
6.14. The new capital requirements will strengthen both local and
international banks so that they play a meaningful role in the
development of the economy.

6.15. The eligible capital components for minimum capital purposes as
defined in the Banking Act are:
i) paid up share capital;
ii) share premium;
iii) audited retained earnings; and
iv) current year retained earnings verified by the banking
institution’ external auditors.
6.16. Every banking institution whose minimum paid - up equity capital
does not comply with the respective prescribed level will be

required to submit a detailed recapitalisation plan to the Reserve
Bank by 30 September 2012, for its consideration and approval,
indicating amounts to be raised and time frames.

6.17. The above capital components conform to the Basel III
provisions which introduce a more stringent definition of, and
qualifying criteria for minimum capital.

6.18. The increases in minimum capital levels for banking institutions
has been necessitated by the dynamic nature of the financial
landscape, regulatory requirements, increasing competition and
economic uncertainties, which has placed an unprecedented
pressure on banks to be adequately capitalised at all times.

Adequate capitalisation is now a source of competitive
advantage.
Motivation for New Capital Levels...
6.19. Internationally, there is a strong consensus among policymakers on
the need for higher minimum capital requirements for banks in
order to foster a more stable financial system.

6.20. Resultantly, regulators across the globe have increased minimum
capital requirements for banks to strengthen their resilience to real
and perceived exogenous and endogenous shocks.

6.21. The current operating environment for banking institutions is
characterized by insignificant external funding, low disposable
incomes, high interest rates and high operational costs. Further,
low industry capacity utilization and illiquidity in the economy
owing to depressed supply of credit is exacerbating pressure on
interest rates.

6.22. Given the current minimum capital requirements, banking
institutions’ capacity to support significant economic activities is
constrained. For instance, for a commercial bank to comply with
the prudential lending limit of 25% of the bank’s capital base, the
bank may only lend up to $3.125 million per borrower.
Consequently, given the current levels of capitalization, the
banking industry will be able to support the funding requirements
of a few borrowers.

6.23. Global experience indicates that the contribution of weak banks to
Gross Domestic Products (GDP) is negligible underscoring the
need to ensure that banking institutions in Zimbabwe are

adequately resourced to play a meaningful role in economic
development.

6.24. Contribution of banks to GDP varies across jurisdictions as
illustrated by the domestic credit provided by the banking sector to
the private sector in the table below.

Table 5: Some Country Indicators in Selected Countries

Source: World Bank, IMF
Country
Name
Area
(Km2)
Population
Size
(million)
GDP
(billions)
Number
of Banks
Domestic Credit by
Banking Sector (%
of GDP)

South Africa
1,228,376
50.60
408.00

184.4
182.2
Nigeria
923,768
160.00
238. 92

36.9
36.3
Sudan
2,505,810
33.42
100.00

20.0
20.5
Tanzania
947,400
42.75
58.55

18.1
20.9
Uganda
241,550
33.47
42.15

11.8
17.1
Kenya
580,370
39.00
32.19

43.1
51.0
Mozambique
799,380
22.95
24.86

22.3
24.1
Zambia
752,614
13.05
20.04

18.5
18.9
Namibia
824,290
2.28
14.60

44.7
48.4
Malawi
118,000
13.07
12.98

32.0
28.4
Zimbabwe
390,757
13.50
10.07

12.3
20.4
Lesotho
30,344
2.20
3.03

12.8
13.7

6.25. It has now become apparent that at the current level of
capitalization, banking institutions are not adequately geared to
sustain and propel the economy’s recovery momentum.

6.26. Fewer, strong and adequately capitalized banking institutions are
better placed to meet the funding requirements of a country’s
economic agents than numerous weak and inadequately capitalised
institutions.

6.27. South Africa with a GDP of over $400 billion in 2011 is supported
by 32 banking institutions. In contrast, Zimbabwe with a GDP of
around $10 billion has 26 operating banking institutions.

6.28. Well capitalised banks have ready access to significant external
funding. South Africa recorded a domestic credit to GDP ratio of
182.2% in 2010 implying that in comparison, Zimbabwe is an
under-banked economy in respect of the provision of services.

6.29. It is noteworthy that Zimbabwe with an estimated population size
of only 13.5 million has 25 banking institutions whilst Nigeria,
with a population of around 160 million, has the same number of
banking institutions. Further, South Africa with a population size
of more than 3 times Zimbabwe’s population has 32 banks.

Regional Experiences...
6.30. A number of regional countries such as Algeria, Kenya, Tanzania,
Uganda and Zambia have revised their minimum capital
requirements in a bid to boost loanable funds and liquidity, and
lower the cost of credit.

6.31. The table below shows current and proposed/revised minimum
capital requirements in selected regional countries.

Table 6: Minimum Capital Requirements in the Region
Country
Bank Category
Current Capital
Requirements
Revised Capital
Requirements
Regional

Algeria
All Banks
$35.5 million
$142 million
Angola
All Banks
$4 million
-
Ethiopia
Banks
$10 million
-
Kenya
Banks
$3.3 million
$11.4 million
Malawi
Commercial Banks
$5 million
-
Nigeria
Universal Banks
$180 million
-
South Africa
Commercial Banks
$39 million
-
Mutual Banks
$ 7.8 million
Tanzania
Commercial Banks
$3.2 million
$9.5 million
Uganda
Commercial Banks
$1.7million
$10.4 million
Zambia
Local Banks
$0.43 million
$20 million
Foreign Banks
$100 million

6.32. In view of the revised minimum capital requirements whose
objective is to have a strong and efficient banking system that is
resilient, consolidation of banking institutions is inevitable

MICRO-FINANCE
INSTITUTIONS
AND
MONEY
LENDING INSTITUTIONS

6.33. Microfinance and money lending institutions must desist from
illegally taking deposits from the public. In view of this, the
Reserve Bank is strengthening its monitoring and surveillance of
these institutions and failure to comply with laws and regulations
governing the conduct of their business as stipulated by the
Reserve Bank, will lead to the cancellation of operating licenses.

MICROFINANCE BILL

6.34. As part of the response to the inadequate legislative provisions
governing the microfinance sector in Zimbabwe, a draft
Microfinance Bill is being finalized. The legal drafters are in the
process of incorporating comments and inputs from the technical
committee comprising the Reserve Bank, Ministry of Finance,
Ministry of Small to Medium Enterprises, Ministry of Justice and
Parliamentary Affairs, Zimbabwe Association of Microfinance
Institutions, and the World Bank (local office).

EDUCATING THE PUBLIC

6.35. The banking sector is urged to educate the public on their rights
when dealing with banks to increase awareness of increased
untoward behaviour by financial institutions who are investing
depositors’ funds in unlawful facilities.

6.36. Substantial amounts of money are being wasted when some of the
institutions take depositors’ funds and utilize them for non-banking
purposes.

6.37. In this regard, the banking public must be warned that when a bank
or any financial institution is offering very high yields as compared
to the rest of the market, then it’s a signal that all is not well with
that institution.

6.38. As such, the public should tread with utmost caution when they
detect signs of this nature. When Monetary Authorities take
remedial measures or even close these institutions, depositors will
lose their valuable investments without any prospects of recovery.
This largely applies to Microfinance Institutions that have
expanded their operations beyond their legal mandates.

UPDATE ON BASEL II/III IMPLEMENTATION

6.39. I am pleased to advise that most banking institutions have started
their internal Basel II parallel runs in line with the Reserve Bank’s
Basel II framework. There, however, remain a few institutions that
are yet to operationalise and fine-tune their rating systems in line
with standards outlined in the Reserve Bank’s Basel II framework.

6.40. The Reserve Bank will in this transition period continue to monitor
the stability of banking institution’s Basel II systems as well as
provide advice and guidance through seminars and workshops for
banking institutions.

6.41. In line with the objective of Basel III which seeks to address
weaknesses identified in the Basel II framework during the global
financial crisis, where bank capital was insufficient to cover
unexpected losses, the Reserve Bank will, with effect from 1
August 2012, increase the capital adequacy and tier 1 ratios from
10% and 5% to 12% and 8%, respectively.

6.42. The revision has been made to ensure that banks hold sufficient
capital buffers that are available on an on-going basis to absorb
unexpected losses in view of increased banking sector risks.
Banking institutions are, however, urged to continue being vigilant

in monitoring risks and develop robust risk management systems
as capital alone is not a panacea to all threats facing banking
institutions.

Table 7: Capital Adequacy and Tier 1 Ratios

6.43. This revision is in line with regional trends. Further, banking
institutions are required to strengthen and develop robust internal
capital adequacy assessment programs which conform to the size
and complexity of their operations.
Country
Leverage ratio
Tier 1 ratio (%)
Capital adequacy ratio (%)
Angola
-
10%
10%
Botswana
-
4%
15%
Kenya
-
8%
12%
Lesotho
-
5%
8%
Malawi
-
10%
15%
Mozambique
-
-
8%
Namibia
6%
7%
10%
Rwanda
-
10%
15%
Swaziland
-
4%
8%
Tanzania
-
10%
12%
Uganda
-
8%
12%
Zambia
6%
5%
10%
Zimbabwe
6%
8%
12%

6.44. Following
representations
from
the
banking
sector,
the
provisioning framework in the Reserve Bank’s Basel II framework
has been fine-tuned as shown in the table below:

Table 8: Basel 11 Framework
Grade
Provisioning Percentage (of Exposure)
1 to 2
1%

2%

3%

4%

5%

10%

20%

50%

100%

STRESS TESTING

6.45. In my Monetary Policy Statement of January 2012, I alluded to the
requirement for banking institutions to conduct periodic stress tests
as part of their risk management practices and submit the results to
the Reserve Bank at the end of each reporting quarter.

6.46. In this regard, banking institutions submitted to the Reserve Bank
stress testing results as at 31 March 2012. The coverage and depth
of the stress tests by some banking institutions still needs to be
enhanced and the Reserve Bank shall continue to guide the
particular banking institutions accordingly.

ISSUANCE OF GOVERNMENT PAPER

6.47. The need to expeditiously introduce short term Government debt
instruments, in particular Treasury Bills of 90-365 day tenure to
improve liquidity cannot be over-emphasized.. The benefits
associated with issuing short dated Treasury Bills go beyond the
need to support Government operations. Other benefits include the
re-activation of the money market and the positive externalities
generated through other financial instruments.

6.48. Against this background, Authorities are in the process of making
arrangements for the issuance of Government instruments in the
next fortnight.

6.49. The issuance of Issuance of Government paper is envisaged to help
eliminate attendant interest rate distortions in the money and
capital markets, reduce high bank charges, facilitate inter bank
trading and providing a benchmark interest rate.

6.50. Once Government paper is issued, bank charges will be
streamlined, lending rates will normalize and the lender of last
resort window can function smoothly with requisite collateral.
Within this context, inter-bank trading will also be enhanced as the
institutions will have acceptable collateral in the form of the shortdated Treasury Bills.

7.
CONCLUSION

7.1. The deterioration in domestic and global macroeconomic
conditions experienced in 2012 has tilted risks of accelerated
economic recovery to the downside. Additional challenges
occasioned by declining agricultural activity as a result of the
drought, commodity price deflation, persistent liquidity challenges
and emerging banking sector vulnerabilities have combined to dim
recovery prospects.

7.2. This notwithstanding, we remain optimistic that our resilient
economy will weather the vagaries of the turbulent global
economic environment.

7.3. This requires that domestic industrial activity be rejuvenated with a
view to bridging attendant supply gaps and shedding off excessive
import dependence. This will undoubtedly arrest the erosion of the

country’s deposit base as the country’s external sector position
improves.

7.4. As Monetary Authorities, we will remain steadfastly vigilant to
safeguard depositors’ funds and ensure the safety and soundness of
the banking sector. This will see the banking sector continue to
play its intermediary role to support the re-orientation of the
Zimbabwean economy firmly onto a sustained growth trajectory.

7.5. Most importantly, the amicable resolution of the country’s external
debt, as encapsulated in ZAADDS coupled with the re-engagement
of the IMF to commence an SMP will unlock credit lines, improve
the country’s creditworthiness and increase the flow of affordable
lines of credit to productive sectors. This is envisaged to provide
substantial impetus to efforts geared at situating Zimbabwe in its
rightful position among its regional and continental peers.


THANK YOU

DR. G. GONO
GOVERNOR
RESERVE BANK OF ZIMBABWE
31 JULY 2012