ZIMBABWE’S leading companies are lobbying for a steep reduction in the interest rate of a critical financing facility introduced by the Reserve Bank of Zimbabwe (RBZ) in August, as monetary authorities prepare to release the monetary policy statement (MPS) under a cloud of uncertainty.
The targeted finance facility (TFF), unveiled in the August 2024 MPS, was designed to support businesses by boosting production and national output.
However, with an interest rate of 30% — closely aligned with the RBZ’s policy rate of 35%, one of the highest in the region — companies argue that the facility is too expensive to be effective.
It was unclear when RBZ governor John Mushayavanhu will announce the latest MPS, which is traditionally released at the end of January.
But, businesses, already struggling under a deepening economic crisis and tight liquidity conditions, see the statement as an opportunity to address pressing financial challenges.
Industry leaders argue that the 35% policy rate and stringent statutory reserve requirements have made borrowing costly, stifling business operations.
While these measures were intended to stabilise prices and the exchange rate, they have been blamed for declining production, capital flight, and company closures.
Last week, the Zimbabwe National Chamber of Commerce (ZNCC) made a formal submission to the RBZ outlining business expectations for the upcoming MPS.
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The chamber intensified calls for a more favourable interest rate regime in one of the region’s most highly-taxed economies.
The ZNCC, in collaboration with the African Development Bank, has engaged in high-level discussions with the central bank, pressing for urgent policy adjustments.
“The lending rate of 30% per annum for the targeted finance facility (TFF) and the 270-day tenure may undermine the policy’s broad based productivity enhancement,” the ZNCC said.
“The bank should align the loan tenure with business cycles as some productive processes require longer gestation periods and the interest rate inflationary developments.
“Ensure that the TFF is accessible to businesses of all sizes, particularly MSMEs (micro-, small and medium enterprises), and remove restrictions on the use of borrowed funds in the interbank market for firms awaiting payments from previous auction systems (firms whose funds were converted into NNCDs (non-negotiable certificates of deposits),” added the chamber.
They also said some businesses were resorting to unconventional methods to safeguard their cash holdings, bypassing the formal banking system.
“Manufacturers and wholesalers often prefer selling goods to the informal sector, which pays in cash, typically in foreign currency rather than to large formal retailers that purchase on credit and pay later in local currency,” ZNCC stated.
“This foreign currency is frequently not banked, diminishing the amount available in the formal economy.
“Some entities resort to alternative methods to safeguard their substantial cash balances, avoiding the formal banking system. Recent indications of an accelerated move towards de-dollarisation have entrenched this practice.”
The four-page document from the ZNCC further revealed that companies are increasingly seeking alternative ways to secure their cash reserves, citing concerns over the stability and reliability of Zimbabwe’s banking sector.
This growing mistrust in the financial system, fuelled by currency fluctuations, inflation, and liquidity shortages, poses a significant threat to economic stability.
As businesses take measures to shield themselves from financial risks, reduced access to credit and declining economic activity could further undermine Zimbabwe’s fragile economy.
The foreign currency earned from these transactions is frequently not banked, reducing the amount available in the formal economy.
