Zimbabwean importers are finding letters of credit (L/Cs) increasingly hard to come by, reportedly because the foreign exchange auction system is failing to satisfy demand.

The L/C shortage persists despite Zimbabwe having accessed in 2017 a US$600 million credit line from the African Export-Import Bank (Afreximbank) in an effort to stave off a foreign currency shortage that has afflicted importers of everything from food to fuel.

Afreximbank support

The Afreximbank credit line should have made L/Cs easier to obtain but recently the central bank has been limiting them. RBZ governor John Mangudya told local media that L/Cs were now reserved for bulk essential commodities, such as fertilisers, grain and fuel.

"This is designed to supplement the resources accessed by entities through the foreign exchange auction system, and to support the productive sectors of the economy and to benefit from economies of large-scale procurement, said Mangudya who also said the Afreximbank line of credit to support L/Cs is being renewed.

L/C abuse

The central bank governor has also said an investigation into oil firms allegedly abusing L/Cs is underway.

The investigations are being undertaken by the country's financial intelligence unit after reports that fuel companies accessing funding from the foreign currency auction are using the funds for foreign currency trading. Fuel companies are required under the auction rules to use US dollars for fuel imports and sell their products in Zimbabwean dollars.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.