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Amendment of foreign exchange retention requirements and the potential impact

By Tatenda Tendayi

Previously, the position with regards to foreign currency retention thresholds was that 30% of foreign currency receipts of exporting service providers would be liquidated at the point of depositing funds in their domestic foreign currency accounts (FCAs). Essentially, this meant that 30% of the foreign currency received through exports would have to be converted to Zimbabwe Dollars on receipt at the prevailing rate of exchange on the Reserve Bank of Zimbabwe (the RBZ) foreign currency auction. In addition, there was a compulsory requirement to liquidate all unutilised export proceeds within 60 days of receipt. This policy measure would not apply to receipts of free funds received by individuals, embassies, NGOs, tobacco, and cotton producers and domestic FCAs for fuel companies.  

On 7 January 2021, the Reserve Bank of Zimbabwe (the RBZ), through its Monetary Policy Committee (MPC) amended the monetary policy regime in respect of surrender and liquidation of foreign exchange receipts in a Press Statement issued on 7 January 2021 titled “Resolutions of the Monetary Policy Committee Meeting Held on 7th January 2021” (the Statement). Through the Statement, the RBZ resolved inter alia:

  1. to remove the compulsory requirement to liquidate all unutilised export proceeds after 60 days, with effect from 7 January 2021; and
  2. to increase the export surrender requirement from 30 % to 40% on all export receipts, with effect from 7 January 2021.

The Analysis

The removal of the compulsory requirement to liquidate all unutilised export proceeds after 60 days is a welcome change to the previous monetary policy regime in that exporters are relieved from the pressure of having to liquidate all unutilised export proceeds within 60 days of receipt or risk having those compulsorily sold on the RBZ foreign exchange auction. However, the increased percentage of export surrender on all export receipts from 30% to 40% needs to be juxtaposed against the revised surrender requirements, in that despite the removal of the 60-day liquidation requirement a bigger portion of export receipts will be compulsorily liquidated on receipt of the funds without affording exporters an opportunity to utilise these funds.

The changes to the monetary policy regime have different implications for different exporters. Exporters that had devised methods of utilising all export proceeds within 60 days of receipt will no longer have to employ such methods but will have to contend with a larger portion of their export proceeds being liquidated on receipt. Other exporters who were subjected to compulsory liquidation both on receipt of the export proceeds and after 60 days of receipt will only have to contend with one instance of compulsory liquidation of export proceeds albeit at a higher percentage than before.

It thus begs the question of whether these amendments will boost investor confidence in Zimbabwe or be viewed as being counterintuitive or a token gesture. Ultimately, it could end up being one step forward and two steps back, with the positivity generated by the abolition of the liquidation requirements being offset by the increased surrender percentage. Only time and investor behaviour will tell.