ICAZ INDABA : Foreign Currency Situation: Current Reality and Way Forward 03 Nov 2017 Cresta Lodge, Sango Conference Centre

Transcription

1 ICAZ INDABA : BUILDING A BETTER ECONOMY Foreign Currency Situation: Current Reality and Way Forward 03 Nov 2017 Cresta Lodge, Sango Conference Centre Alfred Chaavure, ACMA, CGMA Chief Finance Officer Steward Bank Ltd

2 TABLE OF CONTENTS 1. The Environmental Context 2. Background to Foreign Exchange Issues 3. Closer Look Into Trade Gap 4. Interventions to Manage Forex Challenges 5. Sustainable Solutions to the Forex Crisis 6. Implications for Decision Makers

3 The Environmental Context Money Supply ($bn) Government Debt ($bn) RTGS Balances ($bn) Nostro Balances ($m) Bond Notes and Coins ($m) Foreign coins and notes ($m) Inflation: June 2015: -2.8% June 2016: -1.4% June 2017: 0.3% Government Expenditure: High recurrent vs capital expenditure (80% vs 20%) Ease of doing business: Zim ranks 159 of 190

4 Background to the Foreign Exchange Shortages % % Illicit Financial Flows Since 2016 $1.2bn externalized by companies and $864m externalized by individuals Pipeline of International payments reported to be $570m as of September 2017 Parallel Market exchange rates are on the rise Decline in capacity utilization 80% of all payments now electronic Declining FDI since 2014 indicating waning investor confidence Consistent trade deficit, imports on the decline due to forex constraints Promoting the use of plastic money and alternate channels

5 A Closer Look Into the Trade Deficit Export growth has not been adequate to surpass that of imports, resulting in an estimated US$2bn negative trade balance in However trade deficit is expected to decline in 2017 due to increasing exports and projected decline in imports.

6 Interventions to Manage Forex Challenges Bond Notes Export Incentive. Mode of local payments. Introduction of the SI64 To promote domestic production and reduce reliance on imports. Promote the use of plastic money To reduce demand for foreign currency in settling local transactions. Restriction on the use of International cards. Introduction of cash withdrawal limit Prioritisation of International Payments on Critical Imports (Food,Fuel,Raw Materials).

7 Sustainable Solutions To Crisis Are Largely Structural Investment in critical infrastructure Ease of doing business reforms Fiscal discipline Economic and structural reforms Policies that promote global competitiveness versus protectionism Restoring international relations in order to get official development assistance

8 Implications for Decision Makers in the Short and Medium Term Are we entering hyperinflation again? How do you preserve value? Implications for performance measurement and financial reporting? Is the business under threat of collapse? How do you mitigate the risk of the business folding? How do we develop budgets and forecasts that are relevant? Capital budgeting in current environment? How do we innovate around revenue lines under threat? Foreign Investor Relations How do we navigate capital raising in this environment? Loan repayments and dividend remittances? Hyperinflation Going Concern Financial Planning Sustainability Influencing Policy How do we influence policies to create a conducive business environment?

9 Thank You