The economic crisis in Zimbabwe could affect South Africa as the country’s major trading partner on the continent, the South African Reserve Bank cautioned on Thursday.
In its latest Financial Stability Review, the central bank stated: “The continued economic meltdown in Zimbabwe may have wider economic implications. Although constituting a modest 2,4% of South Africa’s exports, Zimbabwe remains South Africa’s largest trading partner on the continent.”
It added that South African exports to Zimbabwe declined by 5,6% in 2004.
However, the Reserve Bank said that the direct exposure of the South African financial sector to Zimbabwean banks remains fairly low and conservatively managed, thus posing no immediate threat.
It added that Zimbabwe’s banking sector has been in a crisis for more than a year. By the end of 2004, eight financial institutions were under curatorship and two were under provisional liquidation.
A plan to merge and recapitalise most of the failed institutions into a new state-owned bank is still contending with legal, regulatory and operational issues, as well as funding problems.
“The banking crisis in Zimbabwe is a reflection of the deteriorating macroeconomic environment: hyper-inflation, negative real interest rates, high and rising unemployment, lack of foreign currency and overvalued exchange rates.
“Although authorities project positive growth rates in 2005, the economy has been in recession over the past five years and the cumulative decline in real GDP [gross domestic product] is estimated at 40%,” it stated.
“In such an environment, the banking sector seems overtraded. Currently the country still has 40 banks. The Reserve Bank of Zimbabwe has introduced some measures to restore stability in the financial sector. These address licensing, capital adequacy, independence of management and credit ratings by reputable agencies.
“However, the direct exposure of the South African financial sector to Zimbabwean banks remains fairly low and conservatively managed, thus posing no immediate threat,” it added. — I-Net Bridge