The Reserve Bank of Zimbabwe (RBZ) believes that most companies with external debt are not going to be adversely affected by the introduction of the interbank foreign currency market, as they have cushioned themselves against rising liabilities through excessive price increases.
It’s only those companies that have not increased prices such as State-owned enterprises that would incur foreign currency liabilities, said RBZ deputy director for economic research Dr Nebson Mupunga during a highly interactive Employers’ Confederation of Zimbabwe (Emcoz) human resources indaba in Kariba recently.
The debate had been sparked by Mr Simon Kayereka, a business consultant with Lopdale Consultancy, who suggested that firms with foreign debts were staring collapse after the RBZ floated foreign currency trade.
The RBZ floated foreign currency trade in a bid to increase the circulation of forex in the formal banking system. The interbank rate started at 1:2,5 but it was 1:3 by end of last week.
Said Mr Kayereka: “I am very worried that the adjustment of the exchange rate increases liability of local companies that have foreign debt.
“If you take, for instance TelOne debt, which owes US$384 million, of which I would like to think about 90 percent is owed to foreign companies, if they had gone to the bank six months ago, they would have paid US$384 million at 1:1, but now they are going to pay that US$384 million two and half times more.”
But while conceding that firms with foreign debt such as TelOne would be affected by the new monetary measures announced in the February 20 Monetary Policy Statement, Dr Mupunga said companies that have increased prices in line with the new exchange rate will not see their foreign liabilities spiking.
“This one to me, you have given a good example of TelOne but we also have to look at this in the context of other companies because those companies borrowed, but some of them have also increased prices x3 or may be x4, and so on, which means it is not actually increasing their liabilities because those companies are also able to purchase foreign currency at the ruling rate,” said Dr Mupunga.
“But for those that have not adjusted prices, yes, they may face that challenge, but for those that have increased prices I think it’s a fair adjustment.”
Analysts say the perspective by the RBZ holds water given that most manufacturers and retailers have increased prices at a rate of 1:4 (United States dollar to the RTGS$ respectively), which was the obtaining parallel market rate last week Friday.
Interestingly, the retailers and manufacturers’ prices started tracking the parallel market rate for the US dollar in October last year when the RBZ directed banks to separate RTGS and USD accounts, which analysts believe has given the companies a lot of time to mobilise money to buy forex and repay their loans.