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'Bond notes to unlock $6bn exports'

by Staff reporter
27 Jun 2016 at 06:48hrs | Views
THE adoption of bond notes will assist Zimbabwe to double its export earnings to $6 billion per year from around $3 billion thereby narrowing the trade deficit through increased domestic production, a Cabinet Minister has said. Finance and Economic Development Minister Patrick Chinamasa said the introduction of bond notes, which are expected to circulate in October, will incentivise exports and buttress the multiple currency system that was adopted in 2009.

"The issuance of bond notes has a self control mechanism in that where there are no exports, there are no bond notes. In other words, the bond notes are issued relative to the volume of exports," said Chinamasa while responding to questions in Parliament last Thursday.

"The bond notes will be gradually released into the economy in sympathy with export receipts through normal banking channels up to a maximum ceiling of the facility of $200 million. The ceiling will be attained when total exports are around $6 billion.

"At the figure of $200 million, the exports should move to $6 billion and currently our exports are around $3 billion. This is something that I worry about because when we compare our exports with other countries in the region, we are very low."

In the context of the US$ shortages that has seen banks limiting withdrawals to minimum $100 per day, the Finance Minister said the country would maintain the multiple currency system whose sustainability was dependent on the country's capacity and ability to generate foreign exchange to meet its domestic and foreign requirements.

Developing and promoting foreign exchange revenue streams such as exports of goods and services and diaspora remittances, he explained, was critical in enhancing foreign exchange reserves of the country.

Zimbabwe has an average trade deficit of around $2.5 billion per annum, a situation which Chinamasa said requires a substantial policy shift to promote exports in view of lack of competitiveness of Zimbabwean exports due to global shocks that include the strong United States dollar, the sharp decline in commodity prices and tighter global financial conditions as well as the precipitous fall of the South African Rand.

"It's against this background that the government, through the RBZ, has introduced the performance related export bonus scheme of up to five percent, in some instances 2.5 percent, to be awarded to exporters of goods and services, to address the challenges of low productivity and promote exports with the overall aim of liquefying the multi currency system," said the minister.

"The export bonus scheme will be paid in bond notes in order to preserve the off shore $200 million counter-cyclical facility that has been arranged to back the export bonus scheme from externalisation and or capital flight, which has continued to negatively affect the economy since dollarisation in 2009."

"So, we've a lot of work to do in order to increase the volume of our exports. At the rate at which the country is exporting, we anticipate that bond notes equivalent to around $50 million will be in the market by the end of December 2016," said Chinamasa.

The bond notes will be at par with the United States dollar in terms of value just like bond coins and will be deposited into one's US$ account.

A depositor can transact through RTGS, make foreign payments for imports of goods and services and transact freely within the multicurrency system using bond notes, said Chinamasa.

The minister dispelled fears that bond notes mark the return of the Zimbabwe dollar saying the micro-economic fundamentals were not yet favourable for a local currency.

He said Zimbabwe needs to build foreign currency reserves, balance government budget, have sustainable interest rates, healthy job market and a higher consumer and business confidence before ushering in a local currency.

Chinamasa said the country's top 20 exporters as of May 2016 have been largely drawn from the mining and agricultural sectors, mainly tobacco sectors, to some extent tea, which accounted for 41.3 percent of total exports.

Zimbabwe fares negatively in terms of exports despite being endowed with vast natural resources.

Chinamasa said Kenya exports about $20 billion per year and it has no minerals or metals except agriculture and tourism. He said Mozambique was now around $11 billion as well Zambia.

Source - chronicle