BANKS in Zimbabwe will meet with authorities on Monday to get clarity on a weekend order given by President Emmerson Mnangagwa that they must halt lending that he blamed for fueling a currency crisis.
Mnangagwa imposed capital controls and ordered banks to suspend lending to government and the private sector with immediate effect, in a televised address on Saturday. It’s not clear if the order also applies to individuals.
The directive is meant to minimize the creation of money “that is prone to abuse for purposes of manipulating the exchange rate for financial gains,” the president said in the speech, adding that banks’ loans will be investigated.
Fanuel Mutoko, the chief executive officer of the Bankers Association of Zimbabwe, confirmed the meeting with the Reserve Bank. “It is difficult to say what the impact of the order will be given the statement came out on the weekend,” he said by phone from the capital, Harare, on Monday.
The order is meant to support the currency, amid a growing threat of the economy “dollarizing” for the second time since 2009 when the country scrapped it’s own currency and turned to the U.S. dollar as hyperinflation soared. The Zimbabwean dollar has lost half of its value this year making it Africa’s worst-performing currency.
Reintroduced in February 2019, the local unit is being sidelined by businesses and individuals in favor of the U.S. dollar, which is being used to pay for everything from food to fuel, medicines and school fees.
Multiple exchange rates of at least 350 to 420 per U.S. dollar are readily available on the parallel market. The central bank quoted the official rate at 276 per dollar on its website on Monday compared with 165.99 last week. The rate is usually set through a weekly auction.
An extended ban on lending risks adding to the nation’s economic woes and could lead to job losses. Policy makers are struggling to contain inflation, having raised the central bank benchmark rate to 80% amid surging inflation that reached 96.4% in April.
“No economy would survive without lending from banks,” said Prosper Chitambara, senior researcher and economist at Labour and Economic Development Research Institute of Zimbabwe, a Harare-based economic think-tank.
The central bank is the regulator of the country’s 19 banks in the financial services sector that cumulatively loaned Z$229.94 billion ($1.39 billion) last year, according to its data. Some of the foreign lenders with operations in the country include units of the Johannesburg-based Nedbank Group Ltd. and Standard Bank Group Ltd. and the Togo-based Ecobank.
The banking sector provided 76% of loans to the productive sector and 20% for consumptive purposes. Agriculture, manufacturing and distribution sectors received the majority of bank loans, the central bank said in a February statement.