Zimbabwe Farmers' Union

Zimbabwe Farmers’ Union 2020 Mid-term Monetary Policy Statement Analysis

07 Sep 2020

1. Introduction

The Mid-term Monetary Policy Statement outlines the monetary policy stance being pursued by the RBZ in the second half of 2020. The government introduced monetary policy measures during the first half of the year such as the introduction of the Foreign Exchange Auction System in response to the volatility in the pricing of goods and services due to the rising parallel exchange rate premium, the Productive Sector Facility as a way to support the productive sectors with funding requirements, Addressing Cash Challenges through introduction of higher denominations and upward review of cash withdrawal limits.

Despite the policy measures put in place, the farmers’ challenges remained. Cash withdrawal remained too low for farmers. Prices of goods and services remained too high, as retailers continued pegging prices against the parallel market exchange rate. In addition, some merchants were not accepting Ecocash payments, reacting to the current micro-economic environment. Producer prices announced by the government for maize, traditional grains and wheat were eroded by inflation.

In an attempt to solve and stabilise these monetary challenges new policy measures have been put in place in the second half of the year to support the existing monetary policy measures put in place in the first half of the year. These include sustenance of the foreign exchange auction and measures to address deficiencies in mobile banking.

2. Sustenance of foreign exchange Auction

2.1. Domestic generated foreign currency

In order to sustain the foreign exchange auction from domestic generated foreign currency, with immediate effect and going forward, 20% of the foreign currency receipts of providers of goods and services shall be automatically liquidated at the auction rate at the point of depositing in the Domestic FCAs. 
 This exempts recipients of free funds including individuals, embassies, non-governmental organizations, tobacco and cotton producers and Domestic FCAs for fuel companies. 


This means that if you receive US$1000 into your Nostro from your local sales proceeds your bank replaces US$200 by ZWL$ equivalent at the auction rate. This is bad news for farmers whose production and marketing costs are high and are financed in foreign currency. The exemption is only for tobacco and cotton producers and leaves out other agricultural producers including horticulture and livestock. How is the exemption going to be effected for those “individual” farmers receiving foreign currency into their Nostro accounts for the sale of their produce?

3. Measures to address deficiencies in mobile banking

3.1. Individuals

To help ease the cash challenges faced by farmers, the policy highlights that transactions by individuals shall be limited to ZW$5,000 per day with immediate effect. This threshold relates to all transactions by the individual including payment to merchants for goods and services, send money and purchase of airtime and data, EcoCash debit card and wallet to bank transfers.

This poses a challenge for farmers who are now faced with the fast approaching 2020/21 farming season, which requires purchase of inputs and equipment. The daily limit constrains farmers who rely heavily on mobile money platforms for their operational transactions.

3.2. Bulk Payments Accounts

The Reserve bank will approve the use of bulk payer lines for purposes of disbursing low value payments, such as disbursement of humanitarian aid and payments related to agricultural activities.

This may be an opportunity for Cotton Contractors to pay farmers through the bulk payer lines. Cotton Merchants have justified paying farmers in kind because of the suspension of merchant lines as a means of paying farmers through the Ecocash platform. Paying farmers in kind including groceries and equipment may not be in the best interest for the farmer who has a lot of other financial responsibilities including health, clothing, retooling for the next season, school fees etc.

It is highlighted in the policy statement that any other bulk payment transactions, such as payment of salaries and wages, should be processed through normal banking channels.

Mobile money is conducive for the farmers’ everyday transactions. Most banks are not located in the remote farming areas and the majority of the farmers do not have bank accounts. Farm production and productivity are affected, as farmers must travel long distances to access cash from banks where cash availability is not even guaranteed.

4. Concluding recommendations

  • There is need for farmers to open banks accounts. The Union should aggressively market its FBC linked membership card, which has been tailor-made to accommodate the seasonality of farmers’ cash flows.
  •  The daily withdrawal limit should be increased from the current $1000 per day to compensate for the reduced mobile money daily limit of ZWL5000.00 per day. Otherwise the individual mobile money threshold should be reviewed upward.
  • All farmers should be exempted from the 20% domestically generated foreign currency surrender meant to support the foreign currency auction.
  • Cotton contractors should apply to the RBZ for the bulk payer lines for the purpose of payment to cotton farmers for cotton deliveries. The payment in kind for deliveries should stop as it disadvantages the farmer and may be open to abuse.