Banking crisis mounts in Zimbabwe

Prices of some commodities, particularly furniture and electrical goods, have started dropping drastically in Zimbabwe, but a crisis in the banking sector continues to hound depositors.

Economists say businesses are trying to raise cash to invest on the money market, where interest rates have shot to more than 700%.

Retail shops, awash with goods that had been stocked up last year in anticipation of Christmas sales which did not materialise, have started reducing their prices.

A leading furniture retail group with more than 30 shops across the country, this week started offering a 40% discount on all its merchandise, a move not seen in the country in recent years.

Zimbabwe’s prices have been on an upward trend since the 1990s, with inflation galloping from around 50% 30 months ago to more than 600% now.

Some retailers are reducing prices due to the introduction on January 1 of value added tax (VAT) which is seeing some goods that were taxed at 25% under the old sales tax system now attracting a lower rate of 15%.

Foreign exchange rates on the parallel market — on which virtually all foreign currency business is traded — have plunged, with one greenback now buying about 4 500 Zimbabwe dollars, compared to 6 200 early last month.

The banking sector has been gripped by a crisis since the closure on New Year’s Day of a leading asset management firm which allegedly defrauded its clients of billions of Zimbabwean dollars. Many current account holders have now been left out in the cold, as their cheques are no longer accepted for payment of goods and services.

Supermarkets, companies and Harare’s municipality have blacklisted at least six recently established commercial banks, rejecting cheques drawn on them.

Several banks have been experiencing liquidity difficulties in recent days after the central bank recently launched a probe into their operations believing they were involved in clandestine speculative activities.

The liquidity crisis comes just months after a severe four month-long shortage last year of bank notes that forced the government to introduce several forms of payment, including bearer cheques and local traveller’s cheques.

In 12 years, Zimbabwe’s banking sector has grown phenomenally, expanding from about 10 banks and asset management firms to more than 30.

”We can say the growth of the banking sector is not helping,” said economist John Robertson.

Shortages of commodities, which had become the order of the day last year, is gradually disappearing as most goods are becoming readily available.

Although prices of most basic commodities are still beyond the reach of many, Robertson predicts that the consumer price index is likely to come down in coming months.

The central bank has predicted the rate of inflation to rise to more than 700% in the first quarter of this year, but has targeted it to drop to 200% by the end of the year. – Sapa-AFP

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Susan Njanji
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