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Zimbabwe: Import Cover Hovers Near Zero
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Financial Gazette (Harare)
1 May 2008
Posted to the web 2 May 2008
Shame Makoshori
Harare
ZIMBABWE'S import cover remains precarious, with the country's foreign currency holdings covering an average of 0,1 months for much of last year, according to statistics obtained by The Financial Gazette.
The country has been battling a foreign currency crisis for the past nine years of recession, with government often buying foreign currency for critical offshore obligations from the illegal parallel market.
Most holders of foreign cash have shunned the official market because of the unrealistic exchange rate, currently fixed at US$30 000 to the United States dollar, against $120 million to the US unit on the thriving parallel foreign currency market.
Government statistics seen by The Financial Gazette this week revealed a dire foreign currency situation, with inflows having plunged from around US2.2 billion in 2000 to US$1.2 billion last year.
The statistics, compiled in February, indicated that the country's import cover had remained bad since 2001 when the import cover was enough to last 0,6 months.
Ideally, a country should have at least three months' import cover.
The import cover went down to an average of 0.3 months in 2005, then 0.1 months in 2006 and 2007, the statistics reveal.
The statistics also indicate that export receipts declined from US$2.2 billion in 2000 to US$1,7 billion in 2006 before further declining to US$1,5 million last year.
Imports remained subdued during the last eight years, declining from US$2,1 billion in 2007 to US$1,5 billion in 2007.
This was mainly due to the scarcity of foreign currency for imports.
In a contribution to African Business in January Reserve Bank of Zimbabwe governor Gideon Gono said the country has had suffered from the effects of a blockade imposed by the United Kingdom and other western powers since 2000.
"Sanctions have had adverse social and economic effects on the Zimbabwean economy's key sectors," Gono wrote.
"They (West) suspended all forms of balance of payments support, technical assistance, grants and infrastructural development flows to both government and private sectors and stopped all lending operations to the country."
"It is usually the vulnerable groups of society who suffer not the political leaders and government officials.
"The shortage of foreign currency resulted in the country accumulating external payment arrears," he added.
The decline in the import cover has exerted enormous pressure on the central bank, which cannot satisfy the country's foreign currency requirements.
The lender of the last resort has been prioritising critical sectors such as health, energy and food imports in the allocation of the scarce foreign currency earnings resulting in a situation where industry has been left to scrounge for the resource from holders of free funds or dabble on the illegal foreign currency market.
Analysts blame the decline in the import cover on poor export performance, the dearth in balance of payments support and disruptions in the farming sector, which affected the country's single largest foreign currency earner, tobacco.
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In its manufacturing sector survey produced last year, the Confederation of Zimbabwe Industries said there was need to allow freer movement of foreign currency at market determined rates to abate the shortages.
"Coupled with the creation of stable macro-elements, this will send signals to global investment communities that Zimbabwe is an attractive and safe investment climate.
"Naturally, there will be more inflows into the country and increased net inflows of foreign currency into the country," noted the country's largest industrial representative organisation.
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