The Reserve Bank of Zimbabwe (RBZ) on Tuesday—17 May—made a U-turn and reversed a recent decree by President Emmerson Mnangagwa to suspend lending by banks.
The central bank governor, John Mangudya, issued a brief statement in which he indicated that the credit ban reversal would not benefit entities that he said had abused loan facilities.
Mangudya said RBZ’s Financial Intelligence Unit (FIU) was investigating the unnamed entities.
“Further to the circular the Reserve Bank of Zimbabwe…issued to banks on 9 May 2022, the Bank wishes to advise the public that the temporary suspension of lending services by banks has been lifted with immediate effect,” noted the RBZ statement.
“The lifting of the suspension does not apply to those entities that are under investigation by the Financial Intelligence Unit (FIU) for abusing loan facilities to the detriment of the economy. The FIU has accordingly advised all banks of the affected entities,” said the central bank in the statement.
A week and a half ago, President Mugabe ordered banks to stop lending—among other monetary measures—as a way to arrest galloping inflation generated by speculative developments on the parallel currency market.
The decree seems to have been driven by the assumption that lending was overfeeding the currency market with money, resulting in inflationary trends.
While the official rate of the local dollar to the greenback was around 165, the black market rate rattled between 330 and 400.
Industrialists, economists and the general public expressed shock at the lending ban by President Mnangagwa and warned that it would starve the economy of money and cause turbulence.
Politician and former Finance minister, Tendai Biti, called it “absolute madness” and described it as illegal.
“Finance is the oxygen of industry. The business of banking is lending. Banning it is unconstitutional,” said Biti.
The directive meant that no new credit facilities were to be issued and this covered new loans, overdrafts, undrawn portions of agreed facilities and other forms of borrowing instruments.
Days later, the Reserve Bank announced that the lending ban did not apply to key like maize, sugar, cotton and tobacco.
Economists have hailed the reversal of the credit suspension.
Prosper Chitambara, an economic analyst, told Grazers News that the Mnangagwa decree was already affecting the economy.
“It’s a positive development (the reversal). We applaud the central bank for reversing that ban because it had already started having catastrophic effects on the economy. No economy can survive without bank credit or access to bank credit.
“What the central bank has done will minimise economic harm that was going to be inflicted on the economy because of the lack of access to bank credit,” Chitambara said.
“It shows that the authorities have been desperate in trying to arrest the unravelling macro-economic situation. It’s like a drowning man clutching at a straw,” he added.
The retail and productive sectors were already experiencing shortages, while black market currency rates continued on a spiral.
The ban, said the economist, would have affected production and caused job losses.
“If production is affected, employment is also affected, which then affects output, exports and many other aspects.
“Bank credit is the life blood of any economy, so if businesses cannot access credit to finances their working capital or for production, then it means they have to downsize,” he said.
Last year, the Ethiopian government ordered a blanket ban on lending by banks, alleging that the loans were being used to feed the parallel market.
The decision was later reversed.