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MONETARY POLICY STATEMENT


STAYING ON COURSE IN FOSTERING PRICE AND FINANCIAL
SYSTEM STABILITY

BY

JOHN PANONETSA MANGUDYA

GOVERNOR


18 FEBRUARY 2021
!"
"
TABLE OF CONTENTS

EVALUATION OF THE PREVIOUS MONETARY POLICY MEASURES ... 7


#"
"
LIST OF FIGURES
Figure 2: Distribution of Foreign Currency in the Auction as at 9 February 2021
Figure 7: Annual Headline and Core Inflation February 2020 to January 2021 24
Figure 12: Composition of Banking Sector Assets as at 31 December 2020 .... 40
Figure 24:Trends in Weekly Foreign Currency Allocations (US$ Millions) .... 60
$"
"
LIST OF TABLES


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SECTION ONE

INTRODUCTION AND BACKGROUND
"
1.1 This Statement provides an evaluation of the progress in the implementation
of monetary policies enunciated in the previous Monetary Policy Statement
of August 2020 and outlines the monetary policy measures to be pursued by
the Bank in the next six months to buttress and sustain the obtaining price
and exchange rate stability since the introduction of a monetary targeting
framework and a functioning foreign exchange auction system. The
measures contained in the Statement are also consistent with the objectives
of the National Development Strategy 1 (NDS1).

1.2 The Statement comes at a time when the global economy is grappling with
the debilitating effects of the Covid-19 pandemic which are causing
incredible human and economic hardships across the country and around the
world. These challenges have seen most central banks adopting monetary
easing, by taking accommodative measures to keep their economies afloat.
The Bank has also responded to the global and domestic economic
conditions in a forward-looking manner to sustain the country’s productive
capacity and fostering price, exchange rate and financial sector stability.
"
1.3 Measures taken by the Bank during the second half of 2020, that included
adhering to conservative monetary targeting framework, strengthening
mobile banking regulations and putting in place a foreign exchange auction
system, were critical in stabilising the economy from the ravages of inflation.
These measures were underpinned by strong fiscal discipline, which
eliminated government recourse to central bank financing. These measures
rescued the economy from an otherwise worse decline of 6.5% that had been
projected for 2020 to a decline of 4.1%.
&"
"
1.4 While prospects for a faster recovery in economic performance in 2021 are
high, on account of a strong balance of payments position and good
agriculture season, the down-side risks cannot be overlooked. A new wave of
the Covid-19 pandemic and its adverse impact on the economy are a cause
for concern. The new variant of the pandemic has caused global economic
and social difficulties, contributing to the re-introduction of stricter
lockdown measures in Zimbabwe and posing potential devastating effects on
the country’s health system, labour force and the economy at large. The
apparent challenges that go with the pandemic include more diversion and
re-allocation of resources by Government towards the additional
requirements of the health sector, an over-stretched and psychologically
challenged labour force and constrained operating business environment.
"
1.5 Notwithstanding these Covid-19 related challenges, the Bank remains
optimistic that the expected economic growth of 7.4% in 2021 is achievable.
The Bank also projects annual inflation to close the year at below 10%. The
measured optimism is based on the expected significant growth of the
agricultural output in 2021, as a result of the good rainy season, fiscal
sustainability and the Bank’s focus on price and financial system stability. It
is in this context that the primary focus of this Statement is to ensure that
inflation is under control and that the foreign exchange auction system is
sustained to support the growth of the economy.
"
1.6 The rest of this Statement is organized as follows: Section two provides an
evaluation of the previous Monetary Policy Statement issued in August 2020.
Section three gives new Monetary Policy Measures necessary to ensure that
the Bank stays on course on fostering price and financial sector stability.
Section four discusses the economic outlook based on current and expected
monetary and financial conditions. Section five concludes the Statement. The
'"
"
Statement also contains an annexure discussing economic and financial
developments underpinning the new monetary policy decisions.


SECTION TWO
"
EVALUATION OF THE PREVIOUS MONETARY POLICY
MEASURES
"
2.1 A number of milestones, especially on attainment of macroeconomic
stability and the restoration of confidence, have been achieved following the
implementation of appropriate and effective policies in 2020. The Bank
adopted a three- pronged approach to stability and growth, centred on (i) the
discovery of a market exchange rate through the foreign exchange auction
system to achieve price and exchange rate stability; (ii) maintenance of a
safe, sound, credible and stable financial sector; and (iii) pursuit of a more
conservative monetary targeting framework to keep inflation and the
exchange rate under check.

("
"
Figure 1: Reserve Bank of Zimbabwe Strategic Policy Framework


Sustenance of the Foreign Exchange Auction System
2.2 The foreign currency auction system has assisted in the discovery of an
appropriate and stable market-based exchange rate for the country. Whilst
more still needs to be done in this area, the evident stability of the
exchange rate, following the introduction of the foreign exchange auction
system on 23 June 2020, has minimised distortions in pricing by curtailing
speculative pricing and parallel market exchange rate indexation of prices
by businesses. Consequently, the parallel exchange rate premium has
reduced to a tolerable band of up to 20%, consistent with experiences in
other countries. In addition, the establishment of an appropriate marketbased exchange rate system has assisted in dampening pressures on
inflation.

Focus on Price & Financial
System Stability
Three Pronged Strategy
Fostering Exchange Rate
Stability
Key Focus Area:
Market Exchange Rate through
the Auction System (Sustenance
of the Auction System)
Domestic Forex
Mobilisation &
Export Promotion
Mobilise Lines of
Credit
Broaden and Deepen
Participation and
Sources of Forex
Financial Sector
Stability

Key Focus Area:
Maintaining safety,
soundeness and integrity of
the financial sector

Minimum Capital
Adequacy
Requirements
Strict Monitoring
of Mobile Banking
Activities
Efficient Payment
System
Management of Money
Supply
Key Focus Area:
Conservative Monetary
Targeting Framework
Bank Policy Rate
Medium Term
Facility Rate
Appropriate
Monetary Policy
Instruments
25% per Quarter
Reserve Money
Growth Target

proportion of the total amount allotted has been earmarked for strategic
sectors for imports of essential goods, especially raw materials, equipment,
pharmaceuticals, chemicals, fuel and electricity. To date, more than 70% of
total foreign currency allotted has gone towards import of raw materials,
machinery and equipment while other essential and strategic imports,
including pharmaceuticals and chemicals, fuel and electricity have, taken
around 11% of the total allotments.

Figure 2: Distribution of Foreign Currency in the Auction as at 9 February

2.2 Since its introduction, the foreign exchange auction system has gone through
a number of refinements to plug observed loopholes, taking into account
valuable contributions and suggestions from the market. In all efforts, the
goal has been to ensure the sustenance of the system through enhancing the
supply of foreign currency into the formal market, while maximizing the
system’s allocative efficiency without undermining the proper functioning
of the market.

Raw Materials
45%
Machinery and
Equipment
17%
Retail & Distribution
8%
Services
8%
Consumables
10%
Fuel, Electricity & Gas
6%
Medicals & Chemicals
6%
EO"
"
maximizing the system’s allocative efficiency without undermining the
proper functioning of the market.

2.3 Export earnings have been the main source of funds for the auction through
voluntary liquidations and the surrender requirements on exports and
domestic foreign currency transactions. Of the total amount allotted on the
auction to date, more than 70% has come from surrender requirements on
exports and domestic foreign transactions. The upward review in the
surrender ratio for exporters from 30% to 40% and the removal of the 60day liquidation requirement on unutilised export earnings in January this
year was meant to increase the supply of foreign currency onto the auction
from the exporters, and at the same time providing flexibility in the usage
of foreign currency earnings.
"
2.4 Working closely with banks, the Bank has managed to resolve the glitches
and payment backlogs experienced last year by some banks’ customers in
the settlement of funds from the auction. The Bank has agreed with banks
to ensure that foreign currency allotments are settled within 14 days from
the date of auction. This clearing period will enable the Bank and banks to
fund the allotments and for banks to undertake the requisite background
checks on their customers, where necessary.

"
Management of Money Supply

2.5 The Bank has continued to successfully implement a conservative monetary
targeting framework in order to contain money supply growth, reduce
pressure on the exchange rate and stem inflationary pressures in the
EE"
"
economy. In this regard, the Bank achieved a conservative quarterly growth
in reserve money of 18.6% in 2020, against a target of 25% per quarter.

2.6 Containment of reserve money way below the set quarterly targets is
attributable to the Bank’s active mopping-up program through open market
operations and the strong fiscal consolidation measures that have seen
Government completely refraining from resorting to the overdraft window at
the Central Bank.

2.7 As at end of December 2020, reserve money was ZW$18.76 billion,
compared to a year-end target of ZW$25.20 billion. Figure 3 shows reserve
money developments in 2020.

Figure 3: Reserve Money Developments
"
Source: Reserve Bank of Zimbabwe, 2020

Liquidity Management
2.8 In line with its conservative monetary targeting framework, the Bank
escalated its open market operations from October 2020 by aggressively

Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov 20
est
Dec 20
est
ZW$ Billion
Reserve Money
Q1 Target
Q2 Target
Q3 Target
Q4 Target
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"
mopping up excess liquidity through the issuance of short-term open
market operations (OMO) savings bonds at 5% per annum interest. As at
31December 2020, the outstanding OMO savings bonds stood at ZW$14.1
billion, representing significant amounts of sterilized excess liquidity.

2.9 The OMO savings bonds complemented the existing 7% savings bonds
with tenor ranging from 1 year to 5 years and a 30-day rediscount window.
The outstanding amount of the 7% savings bonds stood at ZW$5.6 billion
as at 31December 2020. In order to allow banks to increase their lending to
the productive sectors of the economy during the Covid-19 pandemic, the
Bank reduced the statutory reserve requirement from 4.5% to 2.5% in June
2020, among other response measures.

""Inflation Developments

2.10 Due to strong monetary policy measures being implemented by the Bank,
especially keeping reserve money growth under check and the improved
efficiency in the allocation of foreign currency through the foreign
exchange auction system, both overall and blended inflation have been on a
downward trajectory since the second half of 2020.

2.11 The headline CPI month-on-month inflation rate ended the year at below
5% as desired by monetary policy, resulting in annual inflation closing the
year 2020 at 348.6%, slightly above the forecasted 300%. The CPI monthon-month inflation for January 2021, however, slightly increased to 5.4%
from 4.2% in December 2020, which saw year-on-year inflation rising
moderately to 362.6% in January 2021, from 348.6% in December 2020.
The increase in inflation in January 2021 largely reflected the adjustments
in administrative levies and charges that include electricity, municipal
E#"
"
charges, rates and health charges, some of which are traditionally effected
at the beginning of the year. The January 2021 inflation outturn was also
influenced by the increase in international commodity prices for maize,
wheat, fuel, crude soya oil, among others.
"
2.12 The blended inflation, however, remained low at an average of 2 percent
since August 2020. The blended year-on-year inflation stood at 188.9
percent in December 2020, better than the 250 percent projected in the
August 2020 Monetary Policy Statement. The blended annual inflation,
however, marginally increased to 191.5 percent in January 2021, as a result
of increases in prices as explained above. Overall, both headline and
blended inflation are expected to progressively decline in 2021.
Figure 4: Monthly Overall and Blended Inflation (%)


SECTION THREE

NEW MONETARY POLICY MEASURES
"

Jan-20
Feb-20
Mar-20
Apr-20
May-20
Jun-20
Jul-20
Aug-20
Sep-20
Oct-20
Nov-20
Dec-20
Jan-21
Blended
Overall (ZWL)
E$"
"
3.1 The current package of policy measures to deal with price and financial
system stability needs to be maintained and strengthened in order to maintain
macroeconomic stability. Figure 5 depicts the Bank’s desired policy
instruments that are necessary to maintain macroeconomic stability.

Figure 5: National Strategic Focus


3.2 From Figure 5, it is evident that the Bank’s focus should be on monetary and
financial system stability. Accordingly, the following measures to buttress
price and financial system stability are being put in place with immediate
effect:

a. Increasing the Bank policy rate for overnight accommodation from the
current 35% to 40% per annum and the medium-term lending rate for the
productive sector lending from 25% to 30% per annum. The decision on
E%"
"
interest rates takes into account the current liquidity conditions in the
market and the need to continue controlling speculative borrowing.
b. Increasing statutory reserves from 2.5% to 5% for demand and/or call
deposits and maintaining 2.5% for time deposits. The differentiation of
statutory reserves by maturity is expected to incentivise banks to hold
long-term liabilities or time deposits which will facilitate long-term
lending in the medium-term.

c. Maintaining the conservative monetary targeting framework in 2021. This
will be achieved by reducing the quarterly reserve money growth from the
25% quarterly target in 2020 to 22.5% per quarter in 2021.The current
stability in inflation and exchange rate needs to be safeguarded,
maintained and sustained. The reserve money target of 22.5% is
consistent with the targeted end of year inflation of below 10% and the
projected 7.4% economic growth rate of the economy.

d. Increasing the cash withdrawal limits to ZW$2 000 for individuals and
maintaining the current limits on mobile banking transactions at ZW$5
000 per transaction and an aggregate limit of ZW$35 000 per week. This
measure will enable the transacting public to continue conducting small
transactions using cash, whilst large transactions are conducted through
electronic banking.

As previously advised, the Bank shall soon be introducing a ZW$50
banknote to augment the current stock of banknotes in circulation. The
Bank reiterates that banknotes, new or old, do not cause inflation in an
economy since they do not increase money supply. Cash payments are an
alternative to other methods of transacting and do not constitute money
creation. Price dynamics are influenced by the level of money supply in
E&"
"
an economy as opposed to its composition (electronic money, transfers,
cash, etc.), hence the Bank’s firm commitment to keeping the level of
money supply growth under control through its conservative or hawkish
monetary targeting framework.

e. Maintaining and sustaining the auction system through the 40% export
surrender requirement, 20% domestic foreign exchange sales proceeds
surrender requirement and 15% foreign exchange contribution from the
fiscus. Maintaining the foreign exchange auction system remains
paramount in anchoring inflation and maintaining price and financial
system stability. The Bank shall continue refining the foreign exchange
auction system taking into account market fundamentals as well as
closely monitoring the utilisation of funds from the foreign exchange
auction system and the economy at large.

f. Putting in place a definitive programme for accounting and expunging of
foreign exchange obligations under the blocked funds and foreign
exchange legacy-debt framework. This framework will be designed to
ensure that it is not inflationary and takes into account local and
international audit requirements. Applications for qualification under this
framework have been closed and the Bank and Government are at the
stage of implementing resolution.

g. Maintaining the status quo on the minimum capital requirements for
banks and microfinance institutions. The Bank is encouraged by the
capital preservation measures that the banking sector has put in place
towards compliance with the minimum capital requirements effective 31
December 2021. The banking sector capital raising plans are based on
organic growth, mergers, consolidations and fresh capital injections.
E'"
"
"
h. Ensuring that banking institutions comply with the Banking (Savings
Interest Rates) Regulations, S. I. 65A of 2020, which require every
banking institution to pay interest on call, demand, savings deposits and
mobile banking trust accounts at rates prescribed under the regulations.
For mobile banking trust accounts, banking institutions must comply with
the requirement to credit interest due on a monthly basis, proportionately
to each customer’s daily closing balance during each month.

i. Ensuring that Authorised Dealers or banks and foreign exchange auction
system participants comply with auction rules and regulations to curb
abuse of the foreign exchange auction and safeguard the auction from
being abused as a breeding ground for arbitrage opportunities.
Accordingly, the Bank’s Exchange Control Inspectorate and the Financial
Intelligence Unit (FIU) have enhanced their monitoring and surveillance
on the utilisation of foreign exchange in the market to foster market
discipline. Banks and mobile banking institutions are obliged to ensure
that the Know Your Customer (KYC) and Customer Due Diligence
(CDD) principles are complied with at all the times.

j. Establishing a Fintech Regulatory Sandbox to allow entities to list their
financial products, services or solutions within a controlled environment.
The Fintech Regulatory Sandbox which will be housed at the Bank will
be open for financial innovation with effect from 1st March 2021. The
Regulatory Sandbox guidelines are being finalised and will be accessed
from the Bank’s website.


E("
"
SECTION FOUR

ECONOMIC OUTLOOK
"
4.1 The measures presented in this Statement are expected to support the
attainment of the envisaged economic growth of 7.4% in 2021 and to control
inflation to below 10% by end of December 2021. The Bank’s focus on
fostering price and financial system stability in the economy requires team
effort by all Zimbabweans to enhance self-discipline and compliance, and to
cherish economic progress. Thus, sustaining the current economic stability
that was brought about by the conservative monetary targeting framework,
the auction system, fiscal discipline and efficacy in the mobile banking
system is paramount and needs to be preserved, safeguarded and sustained.

4.2 Coupled with increased food production due to a favourable agriculture
season, inflationary pressures are expected to remain subdued in the short to
medium term. As a result, the economy is expected to continue experiencing
a gradual disinflation from the 362.6 percent annual inflation in December
2020 to below 10% by December 2021. This inflation path will be
underpinned by a targeted month-on-month inflation rate of below 3%.

4.3 Figure 6 shows the envisaged inflation path where inflation progressively
declines to below 10% by December 2021.

E)"
"
Figure 6: Projected Inflation path (January to December 2021)

4.4 The expected decline in annual inflation to single digit levels will allow
banks to meaningfully remunerate depositors, while achieving positive
interest rates in real terms. In this context, the Bank calls upon banking
institutions to aggressively promote savings deposits by encouraging their
customers to subscribe to attractive medium to long-term instruments which
not only preserve value, but also enable productive sectors to borrow on a
long-term basis.

4.5 Moreover, the anticipated strong balance of payments position, as a result of
improved foreign currency receipts and subdued import bill due to increased
local production, is also expected to assist in stabilising the exchange rate
and limiting its pass-through effects to inflation. The stability in the
exchange rate will further increase the flow of foreign currency into the
national economy, boost domestic production and promote import
substitution as we journey towards improving the welfare of Zimbabweans.
"
4.6 The envisaged price and exchange rate stability will also foster domestic
competitiveness and anchor the much needed macroeconomic and financial
-100

Mar-20
Jun-20
Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec-21
F"
!O"
"
sector stability necessary for improved production and productivity
supportive of the aspirations of NDS1.

SECTION FIVE

CONCLUSION

4.7 Overall, Zimbabwe’s economy is poised for strong growth in the short to
medium term, buttressed by the resilience and hard-working of its people.
The Bank would, therefore, like to express its gratitude to Zimbabweans for
their resilience in these very difficult and challenging Covid-19 times. In this
context, the Bank will continue to use its full range of tools to support the
economy in these unprecedented challenging times to foster increased
economic activity, employment, as well as price and financial sector
stability.

4.8 Whilst we have so much work ahead of us to rebound the economy, the Bank
expects that the current global economic uncertainties will dissipate as the
roll out programmes on Covid-19 vaccines gather momentum throughout the
world. Stronger economic growth within the national economy will be
underpinned by sound macroeconomic policies characterised by fiscal,
financial and monetary stability. Improved production and productivity will
be key in sustaining the macroeconomic trajectory of growing the economy
by 7.4% in 2021 and above 5% thereafter as envisaged in the NDS1. In this
regard, the Bank affirms its commitment to continue ensuring a hawkish
monetary policy stance, as well as sound financial conditions through its
conservative monetary targeting framework.

!E"
"
4.9 A coordinated approach to macroeconomic policy management, coupled
with hard-working, law-abiding and country-loving citizens would be key in
moving the economy to achieve Vision 2030 of being an upper middleincome country. In this regard, a market friendly investment climate that
supports infrastructure development, conducive financial system, credible
national institutions and a sense of responsibility and accountability will be
critical to contribute towards overall economic development for a brighter
future for all Zimbabweans.
"
I THANK YOU AND MAY GOD BLESS YOU ALL AND MAY GOD
BLESS ZIMBABWE

JOHN PANONETSA MANGUDYA
GOVERNOR


!!"
"
ANNEXURE:
ECONOMIC
AND
FINANCIAL
SECTOR
DEVELOPMENTS
UNDERPINNING
MONETARY
POLICY
DECISIONS

5 GLOBAL DEVELOPMENTS

5.1 The global economy is expected to significantly recover from the negative
growth rate of 3.5 percent recorded in 2020 to a positive growth of 5.5
percent in 2021 and 4.2 percent in 2022. The 0.3 percentage point upward
revision in the 2021 projected growth is premised upon improved economic
activity, resulting from an envisaged effective Covid-19 vaccination
programme. In addition, there are also expectations of more support from
fiscal policy in some large economies, such as the US and Japan. Table 1
summarises global economic growth developments and prospects for
selected regions and countries.

Table 1: Global Economic Growth Rates & Outlook (%)
Country/Group Name

Estimate

Projection

Projection
World Output

Advanced Economies

o/w: United States

Euro-Area

Japan

Emerging
Market
&
Developing Economies

Asia


o/w: China

India

Sub Saharan Africa

o/w: Nigeria

South Africa

*Zimbabwe

Sources: IMF, World Economic Update, January 2021 *ZIMSTAT and MoFED

!#"
"
5.2 The significant recovery in the global economy in 2021 will go a long way
in boosting consumption and therefore prices, particularly of primary
commodities, which are the key exports for Zimbabwe. The projected
increase in oil prices will, however, exert pressure on domestic prices
through retail petrol prices. Table 2 shows the evolution of international
prices for selected commodities, during the year 2020.

Table 2: International Commodity Prices: January –December 2020

Gold
Platinum
Copper
Nickel
Brent crude oil

US$/oz
US$/oz
US$/tonne
US$/tonne
US$/barrel
Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Source: World Bank and Bloomberg, 2020


6 INFLATION DEVELOPMENTS

Headline vs Core Inflation
6.1 Annual headline inflation which peaked at 837.5 percent in July 2020,
decelerated further to 362.6 percent in January 2021. This was largely
attributable to the stability in the foreign exchange market. Both annual
food and non-food inflation declined significantly. Annual food inflation
decelerated from 976.7 percent in July 2020 to 639.9 percent in January
2021. Similarly, annual non-food inflation fell from 755.3 percent in July
2020 to 357.6 percent over the same period.
!$"
"
6.2 As a result, core inflation, which measures the underlying inflation
pressures by excluding changes in prices for certain volatile components in
price indexes including food and fuel prices have been consistently on a
downward trend. The removal of these volatile categories of food and fuel
yields a steadier measure of inflation, and thus is more likely to reflect the
overall trend change in the economy’s general price level. Most often
changes in food and fuel prices are not related to a trend change in the
economy’s overall price level but related to temporary factors, that are
quickly reversed and so do not require a monetary policy response.

6.3 Annual core inflation declined from 742.3 percent in July 2020 to 356.1
percent in January 2021, pointing to a persistent decline in permanent and
underlying inflation pressures. Figure 7 shows the trends in annual
headline and core inflation.

Figure 7: Annual Headline and Core Inflation February 2020 to January

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6.4 Similarly, month-on-month core inflation has been on a downward trend
since July 2020 in line with overall monthly inflation. Overall month-onmonth inflation declined from a peak of 35.5 percent in January 2020 to
5.4 percent in January 2021 while, core inflation fell from 32.7 percent in
July 2020 to 3.4 percent in January 2021. Importantly, monthly core
inflation has been consistently and significantly lower than headline
inflation since November 2020, signaling lower underlying inflation
pressures in the economy. Figure 8 shows the trends in month-on-month
headline and core inflation.

Figure 8: Month-on-Month Headline and Core Inflation (%)


7 BALANCE OF PAYMENTS DEVELOPMENTS

7.1 The country’s external sector position continued to improve, with the
current account remaining in surplus in 2020. Preliminary estimates show
that the current account improved from a surplus of US$0.9 billion in 2019,
to a surplus of US$1.1 billion in 2020. The strong external sector position
was spurred by merchandise exports which increased by 5.8%, from
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Core
Headline
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US$4.7 billion in 2019 to US$4.9 billion in 2020. Export performance was
largely driven by increases in exports of the platinum group metals
(PGMs), amid improved palladium and rhodium prices. The increase was,
however, partially offset by declines in exports of gold, tobacco,
manufactured goods, chrome ore and diamond.

7.2 Merchandise imports are estimated to have registered an increase of 5.1%
to US$4.7 billion in 2020, from US$4.5 billion in 2019, notwithstanding
sharp declines in imports of energy, notably electricity, fuel, raw materials,
machinery, manufactured goods and vehicles in the second quarter of 2020.
This was mainly due to the impact of Covid-19 restrictions domestically
and externally. Food imports, however, increased by 204%, from
US$194.3 million in 2019 to US$591.6 million in 2020, on the back of
increases in maize, wheat and rice imports. Maize imports sharply rose
from US$26.7 million in 2019 to US$297.8 million in 2020, reflecting the
impact of two consecutive drought years.

7.3 The services sector was mainly affected by the Covid-19 pandemic, with
both exports and imports well below pre-pandemic levels. Services exports
contracted from US$603.2 million in 2019 to US$331.4 million in 2020,
owing to the sharp contraction in travel, subdued transport and other
business services exports. The containment measures imposed by
governments in response to the Covid-19 pandemic limited the movement
of people into and out of the country. Similarly, services imports declined
by 15.3%, from US$909.1 million in 2019 to US$769.6 million in 2020,
owing to coronavirus induced disruptions. Figure 9 shows current account
developments.

!'"
"
Figure 9:Current Account Developments

Source: RBZ and Zimstat Estimates

7.4 The current account is projected to remain in surplus position in 2021,
albeit at a somewhat reduced margin as improved foreign direct investment
inflows and other capital flows are envisaged to shore-up imports of goods
and services as the economy recovers.

7.5 Capital transfer receipts which principally constitute the capital account are
estimated to have registered significant growth in 2020 to US$312.6
million, compared to US$52.8 million received in 2019. This, phenomenal
growth was attributed to the increase in humanitarian assistance following
natural catastrophes, including Cyclone Idai and the Covid-19 pandemic.

7.6 Similarly, the country’s financial account position is estimated to have
posted a surplus of US$955.6 million in 2020, compared to US$308.5
million in 2019. Going forward, the country is expected to benefit from
large-scale investments in the mining sector.

!

-400
-200

2019Q1
2019Q2
2019Q3
2019Q4
2020Q1
2020Q2
2020Q3
2020Q4
Trade Bal
Services Bal
Bal on Primary Income
Bal on secondary Income
!("
"
Total Foreign Currency Receipts
7.7 The total foreign currency receipts for the period January to December
2020 amounted to US$6.3 billion compared to US$5.5 billion received
during the same period in 2019, representing a 14.9% increase in foreign
currency supply. Table 3 shows total foreign currency receipts by source.

Table 3:Total Foreign Currency Receipts (USD million)
Type of Receipt
Year 2020
(US$ Million)
Year 2019
(US$ Million)
% Change
Export Proceeds

3,696.30
3,614.88
2.3%
International
Remittances
Diaspora
Remittances
1,002.10
635.67
57.6%
NGOs
647.75
519.42
24.7%
Loan Proceeds

845.21
593.25
42.5%
Income receipts

56.85
59.12
-3.8%
Foreign Investment

40.06
52.47
-23.7%
Total

6,288.26
5,474.80
14.9%
Source: Bank Supervision Application System, and Exchange Control
Records

Export Shipments Performance

7.8 Cumulative export shipments, including Tourism and Cross Border Road
Freight as at 31 December 2020, amounted to US$4.7 billion compared to
US$4.6 billion declared during the same period in 2019. This represents an
increase of 0.3% in 2020. Table 4 shows sectoral export shipments
performance for 2020 and 2019.

"

!)"
"
Table 4: Export Shipments Performance by Sector (US$ Millions)

Sector

% Change
Mining
3,291.80
2,838.90
15.95%
Platinum
1,773.2
1,209.8
46.57%
Gold
994.7
1,058.2
-6.00%
Chrome ore + Ferrochrome
231.5
265.9
-12.94%
Diamonds
126.1
125.6
0.40%
Other minerals
166.30
179.40
-7.30%
Tobacco
782.4
860.8
-9.11%
Manufacturing
244.7
314.8
-22.27%
Agriculture
158.5
344.8
-54.03%
Transport
124.0
191.6
-35.28%
Horticulture
29.3
27.3
7.33%
Postal & Telecommunications
11.7
12.7
-7.87%
Other Services (Construction, etc)
9.3
32.0
-70.94%
Tourism (Hunting)
1.9
19.3
-90.16%
Total
4,653.60
4,642.20
0.25%
Source: Exchange Control Records (2021)

Gold Performance
7.9 Gold deliveries to Fidelity Printers and Refiners (FPR) for the period 1
January 2020 to 31 December 2020 were 19.05 tonnes as compared to
27.66 tonnes during the same period in 2019, representing a year to year
decline of 31%. Table 5 shows gold deliveries to FPR in 2019 and 2020. In
value terms, gold exports declined by 6% from US$1.1 billion in 2019 to
US$994.7 million in 2020. The lower decline in value terms was due to
higher gold prices realised in 2020 compared to 2019.

#O"
"
Table 5:Gold Deliveries to FPR (Kgs)


7.10 The volatility in gold deliveries to FPR during 2020, is attributed to
subdued performance by small scale producers as deliveries from primary
producers relatively mirrored that of 2019. Side marketing of the precious
metal could have contributed to the decline in gold deliveries. In 2020
small scale producers contributed 48.89% of the total gold deliveries to
FPR compared to 63.19% in 2019 where as primary producers contributed
51.1% in 2020.

7.11 Future efforts to increase gold deliveries to FPR shall include enhanced
capacitation of gold producers, coupled with rigorous monitoring of gold
production and marketing and security to miners.

7.12 The unbundling of FPR into two entities, a gold refinery and a printing
company is also expected to enhance gold production given that the gold

Primary Small
Scale
Total
Primary Small
Scale
Total
Jan

Feb

March

April

May

June

July

August

September

October

November

December

TOTAL
10181.50 17478.74 27660.26
9738.75
9313.89 19052.63
#E"
"
producers will be involved directly in the operations of the gold production
through their 60% shareholding in the gold refining business.

International Remittances
7.13 International remittances comprise transfers by International Organisations
for humanitarian assistance and the Zimbabwean Diaspora. As at 31
December 2020, total International Remittances amounted to US$1.7
billion, an increase of 43% from US$1.2 billion recorded during the same
period in 2019

7.14 In the year 2020, diaspora remittances amounted to US$1.0 billion, a 58%
increase from previous year of US$635.7 million. The increase in diaspora
remittances is mainly due to liberalisation of the use of free funds in the
country and improved channelling of remittances through formal channels.
International remittances received through the normal banking system on
behalf of International Organizations (NGOs) amounted to US$647.8
million in year 2020, a 26% increase from previous year of US$519.4
million.

7.15 Table 6 indicates diaspora remittances for period January to December for
the years 2019 and 2020.
"

#!"
"
Table 6: International Remittances Inflows 2019 and 2020 (US$)
Month
Year 2020
Year 2019
% Change
January
60,607,249
44,567,757

February
69,230,034
41,778,076

March
61,172,535
62,414,369
-2
April
30,920,048
49,227,045
-37
May
66,815,291
53,896,272

June
85,849,311
46,525,102

July
91,853,269
51,255,846

August
92,835,172
51,493,743

September
98,384,807
52,538,456

October
103,084,503
59,818,518

November
104,241,599
54,389,450

December
137,106,271
67,768,833

Total
1,002,100,086
635,673,465

Performance of External Loans
7.16 In 2020, loan facilities with a value of US$1.3 billion was approved by
Exchange Control whilst in 2019 the offshore loans approved stood at
US$1.0 billion, representing a 32% increase in terms of loan approvals.

7.17 The sectoral concentration is skewed towards the agriculture sector
accounting for more than 50% in both years, mainly on account of offshore
tobacco financing facilities. Table 7 shows external loan approvals per
sector for 2019 and 2020.


##"
"
Table 7: External Loan Approvals per Sector for 2019 and 2020
Source: Exchange Control Records

Foreign Payments Performance

7.18 For the period January to 31 December 2020, banks processed foreign
payments amounting to US$4.5 billion. This represents a 3% increase from
US$4.4 billion recorded for the same period in 2019. Table 8 shows
foreign payments for the same period in 2020 and 2019.

Sector
Approved
Amount
(US$ M )
Percentage
Sectoral
Contribution
Approved
Amount
(US$ M)
Percentage
Sectoral
Contribution
Agriculture

Construction

Financial

Mining

Tourism &

Transport

Manufacturing

Retail &
2.1
0.15

0.10
Services

Energy
0.0

2.28%
Communication
0.0

0.00
TOTAL

#$"
"
Table 8: Foreign Payments for the year 2020 vs 2019

Category

%
Variance
Contribution

Contribution

Merchandise Imports (excl.
energy)

- Consumption Goods

- Capital Goods

- Intermediate Goods

Energy (Fuel & Electricity)

- Fuel

- Electricity

Service Payments

- Technical, Professional &
consult

- Software

- Other (tourism,
education, freight etc.)

Income Payments (Profits,
Dividends)

- Dividends

- Interest Payments

- Other (Salaries, Expats,
Rental)

Capital Remittances
(outward)

- External Loan
Repayments

- Disinvestments

- Foreign Investment

Other Payments

- Card Payments

- Refunds

Total

Source: CEBAS Foreign Payments Reporting System, RBZ


7.19 Payments for import of goods and services account for approximately 82%
of the country’s foreign payments, indicating the country’s dependence on
imported goods and services. Although there was an increase in global
#%"
"
foreign payments, there was some significant decrease capital remittances
in 2020 relative to 2019, mainly on account of external loan repayments.


8 STATUS AND PERFORMANCE OF THE BANKING SECTOR

8.1 The banking sector continued to play a critical role of supporting
businesses during the pandemic. Despite the varied impact of Covid-19 on
the different sectors of the economy, the banking sector demonstrated
resilience to various shocks, as reflected by the satisfactory performance
during the year ended 31 December 2020. The satisfactory performance of
the banking sector was bolstered by policy interventions by the Bank,
which provided a cushion from the immediate impact of the pandemic.

8.2 During the year ended 31 December 2020, banking institutions transitioned
to a largely remote work environment without notable disruptions in the
provision of services and products.

Banking Sector Architecture
8.3 Table 9 shows the operational banking institutions and other non-banks
under the supervision of the Bank as at 31 December 2020.


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"
Table 9:!Architecture of the Banking Sector as at 31 December 2020
Type of Institution
Number
Commercial Banks

Building Societies

Savings Bank (POSB)

Total Banking Institutions

Other Operational Institutions under the supervision of Reserve Bank
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8.4 Two
licenced
deposit-taking
microfinance
institutions,
Ndoro
Microfinance and CashBox Financial Services are yet to commence
operations as they are putting in place the necessary infrastructure for
commencement of business. Lion Microfinance Limited, which was placed
under curatorship on 26 July 2019 had its curatorship uplifted on 30
September 2020 and commence deposit-taking microfinance business, with
effect from 23 November 2020.

Performance of the Banking Sector
8.5 The performance of the banking sector was satisfactory during the year
ended 31 December 2020, as reflected by the improvement in the key risk
and performance indicators. The financial soundness indicators for the
review period are provided in Table 10.


#'"
"
Table 10: Financial Soundness Indicators
Key Indicators
Benchmark
Dec-19
June-20
Sept -20
Dec-20
Total Assets (ZW$ Billion)

Total Loans & Advances (ZW$ Billion)

Net Capital Base (ZW$ Billion)

Total Deposits (ZW$ Billion)

Net Profit (ZW$ Billion)

Return on Assets (%)

Return on Equity (%)

Capital Adequacy Ratio (%)


Tier 1 Ratio (%)


Loans to Deposits (%)


Non-Performing Loans Ratio (%)


Liquidity Ratio (%)


!
Capitalisation
8.6 As at 31 December 2020, total banking sector core capital of ZW$40.85
billion, reflected an increase of 94.08%, from ZW$20.99 billion as at 30
June 2020. The growth was mainly attributed to growth in retained
earnings, bolstered by revaluation gains from foreign exchange
denominated assets and investment properties.

8.7 Capital positions remain strong with the banking sector average capital
adequacy and tier 1 ratios of 34.6% and 22.7% as at 31 December 2020,
were above the regulatory minima of 12% and 8%, respectively. All
banking institutions complied with the minimum regulatory capital
adequacy and tier 1 ratios.
#("
"
8.8 Following extension of the deadline for banking institutions to comply with
the new minimum capital levels effective 31 December 2021, all banking
institutions submitted updates of their capitalisation plans as at 31
December 2020. Banking institutions have registered significant progress
towards meeting the new capital requirements.

Banking Sector Deposits
8.9 Total banking sector deposits increased by 114.5%, from ZW$97.40 billion
reported as at 30 June 2020, to ZW$208.9 billion as at 31 December 2020
The deposits were made up of ZW$125.3 billion (60%) in foreign currency
and ZW$83.5 billion (40%) in local currency. The increase in total deposits
was mainly attributable to revaluation of foreign currency denominated
deposits. The trend of banking sector deposits over the period 31 December
2018 to 31 December 2020 is shown in Figure 10.

Figure 10: Trend Of Banking Sector Deposits
"
Source: Reserve Bank of Zimbabwe, 2020
13450!
11433!
12460!
57483!
79438!
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8.10 The commercial banking sub-sector deposits amounted to ZW$189.8
billion, which accounted for 91.0% of the total banking sector deposits as
at 31 December 2020.

Banking Sector Liquidity
8.11 The average prudential liquidity ratio for the banking sector remained high
at 73.1%, reflecting in part, the cautious approach to lending by most
banking institutions, especially in foreign currency.

Figure 11: Prudential Liquidity Ratio Trend
"
Source: Reserve Bank of Zimbabwe, 2020
"
8.12 As at 31 December 2020, the banking sector average prudential ratio was
above the minimum regulatory requirement of 30%.


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Banking Sector Assets
8.13 As at 31 December 2020, banking sector total assets amounted to
ZW$349.59 billion and largely comprised loans & advances, balances with
the central bank and balances with foreign institutions, which constituted
20.4%, 16.9% and 14.4%, respectively.

Figure 12: Composition of Banking Sector Assets as at 31 December 2020
"
Source: Reserve Bank of Zimbabwe, 2020
"
8.14 As at 31 December 2020, the banking sector was dominated by commercial
banks in terms of total assets, total deposits and total loans as shown in
Table 11.


Domestic Notes &
Coins
11.92%
Balances with Central
Bank
16.92%
Balances
with
Domestic
Banks
1.70%
Balances with Foreign
Institutions
14.41%
Securities &
Investments
10.06%
Loans & Advances
20.40%
Foreign
Claims
0.10%
Repossessed
Assets
0.25%
Fixed Assets
10.91%
Other Assets
4.79%
Off-Balance
Sheet Assets
8.53%
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Table 11 : Banking Sector Market Shares by Commercial Banks
Indicator
30 June 2020
31 December

Total Assets (%)
89.66
90.03
Total Deposits (%)
91.01
91.02
Total Loans and Advances (%)
85.28
87.48
Source: Reserve Bank of Zimbabwe, 2020
!
Loans & Advances
8.15 Total banking sector loans and advances increased 2.18 times from
ZW$37.8 billion as at 30 June 2020 to ZW$82.4 billion as at 31 December
2020, largely attributed to the translation of foreign currency denominated
loans. During the period under review, banking sector financial
intermediation remained subdued, as reflected by a loans to deposits ratio
of 39.5%, largely as a result of cautious lending approach adopted by some
banking institutions. Figure 13 shows the trend in the total banking sector
loans and advances from December 2015 to December 2020.

Figure 13: Trend in Banking Sector Loans & Advances
"
Source: Reserve Bank of Zimbabwe, 2020
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8.16 Loans to productive sectors of the economy constituted 84.8% of total
banking sector loans as at 31 December 2020, as shown in Figure 14.

Figure 14: Sectoral Distribution of Loans
"
Source: Reserve Bank of Zimbabwe, 2020

8.17 The Bank’s macroeconomic diagnosis suggests that consumption and
investment expenditure are currently the main drivers of the country’s
economic output but are being weighed down by lack of long-term lending.
In fact, the analysis has shown that the country has been experiencing
negative growth on real credit; a situation which dampens investment and
the country’s growth potential. These developments underscore the need
for measures that selectively redistribute liquidity through promoting longterm savings for long-term lending to the productive sector and also to
households for consumption investments. The transmission mechanisms of
these measures into the economy are shown in Figure 15

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Figure 15: Transmission Mechanisms of Attractive Instruments


8.18 As shown in the graph above, promotion of long-term savings deposits and
instruments will enhance access to longer term bank credit, which will
boost household spending on consumer durables, and encourage
investment by households and businesses. In turn, increased economic
activity should raise incomes and savings, along with a cycle of benefits in
the economy.

Loan Portfolio Quality
8.19 Banking sector loan portfolio quality continued to improve as reflected by
a decline in the non-performing loans (NPLs) to total loans ratio from 1.0%
as at 30 June 2020 to 0.3% as at 31 December 2020, partly reflecting the
more than proportionate growth in total loans. Figure 16 shows the trend
in the level of non-performing loans to total loans ratio (NPLs ratio) from
December 2015 to December 2020.

Appropriate Policy
Instruments
Time
deposits at
banks
Production
levels
Economic
activity
Funds for onlending to
SMEs and
Households
Funds for
on-lending
to banks
Net Exports
Demand for
Foreign
Exchange
Exchange Rate
Appreciation/
Stability
Long-term
loans for
capital
projects
Consumption
& aggregate
demand
$$"
"
Figure 16: Trend in NPL Ratio
"
Source: Reserve Bank of Zimbabwe, 2020

Earnings Performance
8.20 During the year ended 31 December 2020 all banking institutions were
profitable, with aggregate banking sector profits for the period of ZW$34.2
billion, an increase from ZW$6.4 billion reported for the corresponding
period in 2019. The growth in income is largely attributable to non-interest
income which constituted 79.5% of total income. Non-interest income
mainly comprised other non-interest income (translation gains on foreign
currency denominated assets, revaluation gains from investment properties)
as well as fees and commissions. The income mix is as shown in Figure 17.

Dec-15
Dec-16
Dec-17
Dec-18
Dec-19
Mar-20
Jun-20
Sep-20
Dec-20
Level of NPLs Ratio
$%"
"
Figure 17: Income Mix - 31 December 2020
"
Source: Reserve Bank of Zimbabwe, 2020
"
8.21 Banking sector profitability as measured by the return on assets and return
on equity ratios improved from 9.0% and 33.0% as at 31 December 2019,
to 13.6% and 45.5% as at 31 December 2020, respectively.

Sustainability Standards & Certification Initiative (SSCI)
8.22 Building a resilient and sustainable banking system that supports
sustainable growth and development remains a key focal regulatory
priority. The number of institutions participating in the Sustainability
Standards & Certification Initiative (SSCI) increased during the course of
2020. As at the end of January 2021, nine (9) banking institutions had
applied to participate in the SSCI of which seven (7) were already
implementing. The institutions that are at implementation stage were in the
Interest Income
from Loans &
Advances
18.01%
Interest Income
on Balances
with Banks
0.38%
Interest
Income on
Investments
& Securities
2.12%
Foreign Exchange
9.01%
Fees and
Commission
26.87%
Other Non Interest
Income
43.61%
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"
process of refining their organizational performance standards including
High Impact Goals, to align with the national development priorities as
espoused in the National Development Strategy 1.

8.23 Implementation of the SSCI is expected to support financial institutions to
remain strong and resilient in a dynamic operating environment, as well as
clearly align their corporate goals with national development priorities,
including addressing the challenges posed by the outbreak of the Covid-19
pandemic, and other unforeseen disruptions.

Performance of the Microfinance sector
8.24 The microfinance sector plays a critical role in promoting access to finance
to the marginalised segments and in supporting the micro, small and
medium enterprises. During the year ended 31 December 2020, the
performance of the microfinance sector was subdued due to the disruptive
effects of the Covid-19 pandemic.

8.25 A total of 31 microfinance institutions ceased operations during the course
of 2020 citing viability challenges arising from constrained funding and
low business volumes compounded by the Covid-19 pandemic. The ‘hightouch’ business model adopted by a number of microfinance institutions,
which entails physical visits and meetings with clients, presented
challenges during the Covid-19 pandemic with respect to disbursement of
loans and collections of repayments.

Performance of Deposit-Taking Microfinance Institutions (DTMFIs)
8.26 During the half year ended 31 December 2020, the deposit-taking
microfinance sub-sector remained generally stable and resilient. The
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"
subsector reported improvements in key financial stability indicators as
shown in Table 12:

Table 12: Performance Indicators for DTMFIs
Key Indicators*
Dec-19
March-20 June-20
Sept- 20
Dec - 20
Total Assets (ZW$ Million)

Total Loans & Advances (ZW$
Million)

Core Capital (ZW$ Million)

Net Capital Base (ZW$ Million)

Total Deposits (ZW$ Million)

Net Profit (ZW$ Million)

Average OSS ratio (%)

Average Return on Assets (%)

Average Return on Equity (%)

Average Prudential Liquidity Ratio

Portfolio at risk Ratio (> 30 days)

*Excluding Lion Microfinance whose curatorship was uplifted on 30 September 2020 and resumed
operations on 23 November 2020.

Status of Capitalizations
8.27 All the six (6) operating DTMFIs were compliant with the minimum
regulatory capital requirement of ZW$5 million. The aggregate
capitalisation levels for the DTMFI sub-sector improved as reflected by a
74.2% increase in core capital from ZW$300.98 million as at 30 June 2020
to ZW$524.2 million as at 31 December 2020. The increase was largely
attributed to organic capital growth coupled with fresh capital injections in
the relatively new DTMFIs.

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"
8.28 DTMIs are working towards complying with the new minimum capital
requirement of the local currency equivalent of US$5 million effective 31
December 2021.

Total Loans and Deposits
8.29 The DTMFI sub-sector recorded a 138.9% growth in total loans from
ZW$134.3 million to ZW$320.9 million during the half year ended 31
December 2020. Credit risk as measured by Portfolio at Risk (PaR) ratio
(>30 days) improved from 17.0% to 6.5% during the same period. The
improvement was due to relaxation of Covid-19 induced restrictions which
enabled clients to resume operations as well as enhanced collection efforts
by DTMFIs. Total DTMFIs sub-sector deposits increased by 187.8%,
from ZW$83.1 million as at 30 June 2020 to ZW$239.1 million as at 31
December 2020. There is still need for the subsector to grow its deposit
base to sustainable levels.

Earnings Performance
8.30 The sub-sector’s earnings performance for the year ended 31 December
2020 improved as evidenced by the improvement in operational selfsufficiency and return on equity ratios. Aggregate DTMFI sector profits for
the year ended 31 December 2020 amounted to ZW$140.5 million,
representing a seven times increase from ZW$17.4 million reported for the
corresponding period in 2019. The growth was largely driven by
revaluation gains on investment properties. Operational self-sufficiency
and return on equity ratios improved from 122.6% and 9.5% to 128.1% and
9.7%, respectively.


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"
Outreach
8.31 The sub-sector’s outreach as measured by the number of active clients
marginally improved by 3.6% from 128,535 as at 30 June 2020 to 133,148
as at 31 December 2020. The marginal growth is attributed to the impact of
Covid-19 lock down measures which have restricted economic activity of
MSMEs and individual business who are the target segments for DTMFIs.

LEGAL AND REGULATORY DEVELOPMENTS
Amendments to the Banking Regulations S. I. 205 of 2000
8.32 In line with its mandate of promoting financial stability, the Bank
continues to strengthen the regulatory framework and direct its supervisory
efforts towards the promotion of a safe, stable and sound financial system
in Zimbabwe. In this regard, amendments were effected to the Banking
Regulations, S.I. 205 of 2000.

8.33 The Banking (Amendment) Regulations No. 5 of 2020 was gazetted on 6
November 2020. The amendments align the Banking Regulations to the
Banking Act [Chapter 24:20] following amendments effected in 2015 and
provide for the minimum capital requirements, and enhance corporate
governance standards as follows:
a) reducing significant interest threshold from 10% to 5% in line with the
new section 15B (1) of the Banking Act;
b) increase the maximum shareholding that an ordinary company can
have in a banking institution from 10% to 25% in line with the new
threshold limits in section 15A (1) of the Banking Act;
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"
c) provide for the disclosure of interests form as required under the new
section 20B of the Banking Act;
d) provide additional prudential limits for lending to insiders and their
related interests; and
e) provide for the previously announced minimum capital requirements
for banking institutions which are effective 31 December 2021.
"

Proposed Regulations to the Microfinance Act [Chapter 24:30]

8.34 Following the amendment to the Microfinance Act [Chapter 24:30]
through the Microfinance Amendment Act No. 6 of 2019, Regulations are
being developed to provide for all matters that require to be prescribed,
including capital, shareholding limits and asset quality. The Regulations
will also cover loan provisioning as well as minimum standards of
corporate governance and risk management practices.

Enhancement of Prudential Standards
Basel III Liquidity Standards
8.35 The development of a framework for the implementation of Basel III
Liquidity Standards, covering the Liquidity Coverage Ratio (LCR) and Net
Stable Funding Ratio (NSFR) was successfully completed. The Bank has
commenced a consultative process with the banking sector as part of the
steps to operationalise these standards by 31 December 2021.

8.36 The LCR is designed to ensure short-term resilience of the liquidity risk
profile of banks by ensuring that they have sufficient unencumbered highquality liquid assets to survive a significant stress scenario lasting for one
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"
month. The NSFR seeks to promote resilience of banks over a longer time
horizon by creating additional incentives for banks to fund their activities
with more stable sources of funding on an ongoing basis.

FINANCIAL INCLUSION
8.37 The Bank has reviewed the implementation of the first phase of the
National Financial Inclusion Strategy (2016-2020) and will publish the
National Financial Inclusion Journey (2016-20) Report. The report will
outline the progress made in improving access to financial services through
digital financial services, product innovation, financial literacy and
consumer protection, establishment of low cost bank accounts, and
establishment of women desks and SME units in most of the banking
institutions.

8.38 Meanwhile, the Bank has commenced the drafting of the second phase of
the National Financial Inclusion Strategy (NFIS 2) and will be engaging
key stakeholders in order to develop a comprehensive strategy supportive
of the National Development Strategy 1. The National Development
Strategy 1 identifies financial inclusion as a critical catalyst in promoting
inclusive economic growth and attainment of the country’s vision of a
“Prosperous & Empowered Upper Middle Income Society” by 2030.


8.39 NFIS2 will also focus on addressing challenges identified during NFIS1
while ensuring that the unique financial needs of the marginalised and
vulnerable groups continue to be adequately catered for. Banks,
microfinance institutions, capital market operators, pensions and insurance
companies as well as mobile network operators, are expected to continue
exploring innovative ways of delivering sustainable and quality financial
%!"
"
services to the marginalised segments as well as take measures to promote
consumer education and financial literacy to enable the transacting public
to make informed financial decisions.
"
Level of Access to Financial Services
8.40 Since the launch of the NFIS1 in 2016, the Bank has noted a remarkable
improvement in the level of access to financial services as reflected in the
financial inclusion indicators in Table 13.

Table 13: Financial Inclusion Indicators 2020
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Source: Reserve Bank of Zimbabwe, 2020

8.41 The total number of active bank accounts has continued to increase on the
back of an increase in the number of low-cost accounts offered by banking
institutions to the low income segments during the first phase of NFIS.
%#"
"

8.42 The number of accounts opened by women and MSMEs increased from
less than 800,000 and 80,000 in 2016 to over 2.5 million and almost
140,000 in 2020, respectively, largely as a result of increased gender and
MSMEs initiatives by the Bank and other stakeholders. Lending to target
segments such as women, the youth and MSMEs also increased, largely
due to a number of targeted financial inclusion interventions.
"
CREDIT INFRASTRUCTURE
Credit Registry
8.43 The Bank noted a stable progression in the usage of both the Credit
Registry and private bureaus during the course of 2020 as both banks and
MFIs continue to rely on the credit infrastructure for their ongoing credit
risk management processes. Figure 18 highlights the level of enquiries in
the Credit Registry by banks and microfinance institutions over the year.

Figure 18: Quarterly Credit Registry Inquiries by Banks and MFIs

Source: Reserve Bank of Zimbabwe, 2020
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"

Collateral Registry

8.44 The Bank has successfully identified a Collateral Registry software
provider, in line with the national procurement laws and regulations. The
implementation process has since commenced. It is anticipated that the
deployment of the Collateral Registry system will be completed in the first
half of 2021 while full operations will start before the end of the year
ending 31 December 2021. The operationalization of the Collateral
Registry will enable members of the public to leverage on their movable
assets to access funding from financial institutions.

9 MONEY AND CAPITAL MARKETS DEVELOPMENTS

Monetary Developments

9.1 Money supply increased over the year, rising from ZW$36 billion in
January 2020 to ZW$184 billion in December 2020. The growth in money
supply was largely attributable to the impact of exchange rate movements
on the 60% foreign currency component of the deposits. The exchange rate
depreciated from ZW$17.35/USD in January 2020 to ZW$57/USD at the
first foreign exchange auction in June, and further to ZW$81.82/USD by
end of November 2020.

9.2 Consequently, foreign currency deposits increased from ZW$12.45 billion
January to ZW$102.18 billion in November 2020, thus significantly
accounting for the expansion in money supply. Foreign currency deposits
accounted for 55.4% of money stock, while local currency deposits
%%"
"
constituted the remainder. Figure 19 shows broad money supply
components in nominal terms as well as annual growth.
Figure 19: Broad Money Developments
"
Source: Reserve Bank of Zimbabwe, 2020

Stock Market Developments

9.3 During the year 2020, the Zimbabwe Stock Exchange (ZSE) was
characterized by bullish sentiments, notwithstanding the limited range of
investment options and high inflation expectations in the first half of the
year. As a result, market capitalisation surged by 957.8%, from ZW$30.1
billion recorded in December 2019 to end the year 2020 at ZW$317.9
billion.

9.4 In the same reporting period, the All Share and Top 10 indices grew by 1
035.5% and 709.9% to close at 2 636.34 points and 1 671.47 points,
respectively. The growths were partly explained by relatively high average
inflation during the first half of 2020. The figure below shows the
developments of the ZSE All Share and Top 10 Indices for the period
December 2019 to December 2020.
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Figure 20: ZSE All Share and Top 10 Indices

Source: Zimbabwe Stock Exchange 2020

9.5 During the same period, the mining and industrial indices went up by 1
205.53% and 1 035.5% to close the year at 4 134.09 points and 8 782.18
points, respectively. Figure 21 shows developments in industrial and
mining indices for the period December 2019 to December 2020.

All Share Index
Top 10 Index
%'"
"

Figure 21: Industrial and Mining Indices
Source: Zimbabwe Stock Exchange, 2020
9.6 At the beginning of 2020, the ZSE introduced three new indices on the
trading platform. The additional indices took the form of Top 15, Medium
and Small Cap, and are intended to track developments on the three
segments of the local bourse, hence assisting investors to track portfolio
changes on a more granular basis.

9.7 Since inception, the Small Cap, Medium Cap and ZSE Top 15 indices
increased tremendously to end the year 2020 at 11 914.14 points, 5 491.09
points and 1 976.98 points, respectively.

Money Market Developments

9.8 Average money market liquidity as measured by banks deposits at the
Bank rose from ZW$6 billion in January 2020 to ZW$14.2 billion in
December 2020. The rise in market liquidity was largely on account of
increased Government expenditure through the reduction of its bank
balance at the Bank, as well as purchases of foreign exchange for


31-Dec-19
31-Jan-20
29-Feb-20
31-Mar-20
30-Apr-20
31-May-20
30-Jun-20
31-Jul-20
31-Aug-20
30-Sep-20
31-Oct-20
30-Nov-20
31-Dec-20
Mining Index
Industrial Index
Industrial Index
Mining Index
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"
settlement of external obligations. The monthly average RTGS balances in
2020 are as depicted in Figure 22.

Figure 22: Monthly RTGS Average Balances

10 CURRENCY AND PAYMENT DEVELOPMENTS

10.1 The local currency remained relatively stable in the fourth quarter of 2020
at around Z$81.44 per US$1. The introduction of the Foreign Exchange
Auction System on the 23rd of June 2020 saw the foreign currency
exchange rates almost converging as the exchange rate premium collapsed
from 300% prior to the introduction of the Auction to less than 15 during
the fourth quarter of the year. Figure 23 shows exchange rate developments
since the introduction of the Auction in June 2020.

Figure 23: Convergence of Foreign Currency Rates

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10.2 The decline in the premium led to stability in the foreign exchange market,
which filtered through to the pricing of goods and services.


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Developments on the Auction

10.3 As at 31 December 2020, the Bank has held 29 Main and 21 SME
auctions, with a total of US$624.2 million being allotted, representing
97% of total bids received. In line with the priority list, raw materials,
machinery, equipment and consumables accounted for about 70% of
allotments.

10.4 Reflecting the increase in the demand for foreign exchange on the
auction, allotments increased from an average of about US$18 million
before October 2020 to an average of US$30 million between October
and December 2020. Figure 24 shows trends in weekly foreign currency
allocations.
"
Figure 24:Trends in Weekly Foreign Currency Allocations (US$ Millions)
"
Source: Reserve Bank of Zimbabwe


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Interbank Foreign Exchange Market

10.5 Over and above the US$624 million allocated on the auction by end
December 2020, banks also traded foreign exchange within the interbank
market to the tune of US$403 million.

NATIONAL PAYMENT SYSTEMS DEVELOPMENTS

10.6 The national payment systems remained safe and sound attributable to the
on-going policy intervention measures, underpinned by the adoption of
comprehensive regulatory framework and international best practices. In
an effort to combat the spread of Covid-19, the Bank continued to
encourage the public to make use of digital and electronic payment
methods in conducting their financial transactions.

10.7 Total value of national payment systems transactions increased by 430%
to ZW$2.45 trillion in 2020 from ZW$463 billion in 2019, while volumes
declined by 16% to 1.9 billion as shown in Figure 25.

Figure 25: Total Payment Systems values and volumes from 2016-2020


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The Real Gross Settlement System(RTGS)

10.8 The RTGS system had a total of 10.7 million transactions valued at
ZW$1.56 trillion in 2020 representing increases of 16% and 417%,
respectively.

Figure 26: RTGS Values and Volumes for the Year 2020


Financial Market Infrastructure

10.9 As at 31 December 2020, the number of regulated payment service
providers were thirteen (13) while participant banking institutions were
twenty-four (24) as shown in Table 14.

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Table 14: Payment Platforms and Participants Banks as at 31 Dec 2020
Payment Platform
Payment Stream
Number of Direct
Participant Banks
1. RTGS
High Value

2. CSD
High Value –Gvt Securities

3. *SWIFT
Foreign payment channel

4. *SADC-RTGS
Regional foreign payment channel

5. Zimswitch
National Switch

6. Ecocash
Retail –

7. One-Wallet
Retail –

8. Telecash
Retail

9. Icecash
Retail –

10. Mycash
Retail –

11. *Visa
Retail –

12. *Mastercard
Retail –

13. *Union
Pay
International.
Retail –

*Mainly for foreign transactions

Payment and Settlement Systems

10.10 The Bank remained focussed on ensuring an uninterrupted availability of
efficient, safe, secure and accessible payment systems, through the robust
systems infrastructure and crisis management measures in place. The
Covid-19 pandemic necessitated the triggering of the business continuity
plans (BCPs) for the smooth running of systemically important and
critical payment systems. Despite remote operations for some of the
systems, they remained stable.

10.11 In this regard, transactions performed through cheques declined
considerably while usage of digital financial services increased
significantly. The Bank will continue to monitor local and cross border
payments as well as other market developments and intervene
appropriately to ensure systems integrity and stability.


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"
Interoperability

9.1 Interoperability, particularly of mobile money, is yet another significant
milestone achieved by the Bank during 2020. The implementation of
“wallet-to-wallet” interoperability through the designated National Switch,
Zimswitch Technologies P/L as from 29 September 2020 was a game
changer under the national payments systems. Figure 27 shows the
activities for three and half months from October 2020 to January 2021.

Figure 27: Incoming and Outgoing Values as at 15 January 2021


9.2 The national switch will bring the much desired convenience to the market
through shared infrastructure whilst competing on services. It is expected
to play an important role in enhancing the usage of payment services,
thereby deepening access and quality of financial services. The national
switch will also improve the oversight role of the Bank through access to
transactional information.

9.3 Accordingly, all payment services providers including mobile money
providers are required to:
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i.
take advantage of this initiative to offer quality services by enhancing risk
management systems and consumer protection mechanisms;
ii.
preserve competition and innovation in the payment services sector, while
optimising positive network effects that are critical to benefit users of
different digital financial payment services; and
iii.
act responsibly towards pricing services related to interoperability and
allow the national switch to achieve economies of scale through adopting
customer centric strategies.

Oversight and Risk Management

9.4 The Bank remains committed to an effective oversight and supervision of
the payment services sector as part of its broad mandate. In 2020, the
Bank’s oversight focused on IT security, efficiency, reliability, consumer
protection recourse mechanisms, data protection, responsible innovation,
competition,
payment
systems
availability,
business
continuity
management and incidence of fraud.

9.5 Off-site surveillance and monitoring through digital dashboards and
analysis of routine reports complemented the on-site examinations which
were constrained by the Covid-19 lockdown measures.

9.6 Notable observations were weaknesses on governance issues and failure to
implement the appropriate risk management measures on an ongoing basis.
There was general failure by some senior management and boards of
payment services providers to be proactive on understanding and dealing
decisively with the current risk dynamics.

&&"
"
9.7 In this regard, all payment services providers are required to enhance their
governance arrangements in line with the 2017 Guidelines on Retail
Payments Systems and Instruments.

Mobile Money Operators

9.8 During the first half of 2020, the Bank commissioned a forensic audit to
investigate the operations of mobile banking institutions. Results of the
forensic audit were used to strengthen mobile banking regulations. The
timely intervention measures by Government and the Bank in
strengthening the operations of mobile banking institutions and the
establishment of the national switch for interoperability brought sanity in
the sector.

9.9 The Bank directed all payment systems providers to continuously monitor
the transactional activities of their customers using the expanded risk-based
approach to KYC. Payment systems providers were also directed to
continuously take appropriate action against transgressors including
reporting suspicious transactions to the Financial Intelligence Unit as
expected.

Cyber Security Framework

9.10 The Bank noted that digital financial services have advanced significantly
in the past few years with new initiatives largely displaced the traditional
ways of financial services. With such developments there has also been
increased advent of novel types of cybersecurity threats, which have
resulted in some criminal conduct cutting across jurisdictions.

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"
9.11 In this regard, there is need for all financial and payments services
stakeholders to keep abreast of such cybersecurity threats and proactively
formulate mitigates to ensure the financial system safe and secure. To this
end, the Bank will soon issue a Cyber Security Framework to further guide
the market.
"
Payment Channel Risk Management

9.12 According to the latest National Risk Assessment Report (2020), the
common trend indicates that fraudsters were targeting financial institutions
largely leveraging on the digital financial landscape. Given the high cyber
threats to the financial services ecosystem, in particular, cross border
payments the Bank would like market players to effectively implement the
SWIFT Customer Security Program(CSP).

9.13 CSP aims to reinforce the security of the entire SWIFT ecosystem by
improving the local environment security of each individual user. The
same should be customised to the other payment channels to ensure
coordinated and enhanced security standards. All users are therefore
encouraged to continuously undertake Self-assessments against the SWIFT
Customer Security Controls Framework (CSCF) annually.

9.14 The Bank is encouraged by the participation of local banks on the SADC
RTGS regional payment and settlement system that was developed to
facilitate funds transfers across boarders in the SADC region.


&("
"
Anti – Money Laundering (AML) Guideline

9.15 Pursuant with the unwavering commitment to ensure financial stability and
integrity, the Bank continued to enhance the oversight and supervisory
processes by issuing a revised AML Risk-Based Oversight Guideline to
payment services providers.

9.16 The AML Oversight Guideline will continue to be underpinned by RiskBased approach methodologies, with particular emphasis on the
identification and understanding of money laundering and terrorist
financing risks within the payment services sector which should be
informed by the national and institutional risk assessments.

9.17 The Risk-Based approach also provides a solid foundation for
implementation
of
the
Financial
Action
Task
Force
(FATF)
recommendations and implementation process commensurate with the risk
management measures in place.

9.18 The Bank, therefore, urges senior management and Board members of
payment services providers to familiarise themselves with the Guideline
and ensure compliance.

END OF STATEMENT