The Presidential Powers (Temporary Measures) (Financial
Laws Amendment) Regulations, 2021, introduced last week forced businesses to
use the US$1:ZWL$84 exchange rate.
They also made it illegal to give customers a discount for
paying for goods or services in foreign currency, refuse to take local currency
payments at the official exchange rate and to issue Zimbabwe dollar receipts
for goods paid for in foreign currency.
The move has seen businesses either conveniently going into
stocktaking exercises as they assess the situation and come up with viable
solutions, while others resorted to increasing US dollar prices by more than
40% to close the gap between the black market and official auction system
exchange rates.
Industry has flatly rejected the policy measures, under SI
127 of 2021, describing them as a new threat to their existence.
Industry sources, who requested not to be named, said
business was in trouble in the wake of the new policy.
“Some companies had borrowed heavily in Zimbabwe dollars
despite arguably high interest rates banking on the parallel market rates, but
this has been scrapped now and we are in trouble,” said the source, adding that
the forex auction system was flawed and useless.
They said imports would be the only option as US dollar and
Zimbabwe dollar prices will go up by at least 40%.
“What is happening is that there is a huge delay on the
auction, your Zimbabwe dollars are deducted to pay for forex and sometimes it
takes a long to come,” the source added.
“What has been helping us is that we had free funds because
of the good rates and people were paying in foreign currencies, but after this
all that will go away and we will surely sink.”
Confederation of Zimbabwe Industries CEO Sekai Kuvarika
said industry had rejected Mnangagwa’s move.
“It’s not a welcome development to business,” Kuvarika
said. “We are finalising our response to the statutory instrument and our
response will be out on Monday [tomorrow].”
Sources close to the industry body, however, say members
were infuriated and an adverse response was likely.
Zimbabwe National Chamber of Commerce (ZNCC) CEO Chris
Mugaga also said industry was not pleased with the decision and it would oppose
it. Mugaga said the SI was a confirmation that the exchange rate stability was
artificial.
“You don’t measure stability by a stationary exchange rate,
but by using market developments,” he said.
“People are focusing on the SI, on its impact on business and they are
forgetting that the SI is just the government somehow confirming to you that
the auction exchange rate is not the exchange rate, otherwise there is no need
to deviate.
“I think you know our position is that the auction system
needs a revamp so that it is market reflective, so those marketeers,
auctioneers who have been preaching the language of a perfect auction system
should not cry because surely if everything was perfect then it would reflect
reality,” Mugaga said, adding that the rules were a form of financial
repression.
“As ZNCC, we maintain that you can never legislate the
exchange rate, let the market decide.
“This is a level of financial repression, which is not
directly a function of interest rates. That’s one issue we are against and we
don’t think we are supporting this SI whether it’s going to be implemented or
not. The signal it is sending is just also telling a very toxic story to the
market that the only exchange rate everyone should be talking about is the one
from the auction.
“But I think it’s time we should sit and interrogate the
auction and see if the auction is the best way for price discovery given the
realities surrounding it right now.”
Economist Chenaimoyo Mutambasere said it was impossible to
control the exchange rate through legislation.
“The fact that the auction has been stable at 85 shows
there is a hand in operation because by sheer nature of it being auction the
price should never be predetermined and a sticky ‘auction’ rate suggests that
this is a pegged regime, which requires
a clear strategy so that investors can
weigh the risks to the their investment,” Mutambasere said.
“Is the endgame to move to local currency or dollarisation
and when? “A pegged regime only works for a finite period and with a clear
strategy to follow.”
Mutambasere warned alternatives would be investors exiting
the market altogether which would in turn roll out the red carpet for
hyper-inflation.
Economist Kipson Gundani said the new rules would not work
as government was trying to force people to use a fixed exchange rate.
“Everyone had the liberty to charge what they wanted in US
and Zimdollar,” Gundani said. “The variation is that literally, people are
being forced to use the government-determined exchange rate,” he said.
“People do not want to make losses, they will price in
local currency, but use the black market rate at the back of their minds.
“The SI will result in a runaway black market. There will
be more demand for the US at the black market. This also results in borrowed
inflation, inflation stimulated via the exchange rate.
“The prices of goods will go up. People will be indexing
prices in the US dollar.” Consumers have borne the brunt of the policy
inconsistency by Mnangagwa’s government, which came into power through a
military coup in 2017.
Mnangagwa started by insisting the multiple currency system
would stay before yielding to the threat of a civil service uprising in 2020 to
introduce a mono currency system under the Zimbabwe dollar, giving the Treasury
the leeway to print cash and pay its bloated civil service which gobbled as
much as 98% of the cash budget at peak.
Mnangagwa’s latest manoeuvres, which effectively barred
players from giving discounts on US dollar cash sales, closed the gap for
unscrupulous businesses to trade at the official rates while pricing at black
market rates.
Business fears foreign currency will, as a result of SI127
of 2021, find its way into the parallel market and starve operators of the free
funds they had now started to enjoy.
And Mnangagwa’s spokesperson George Charamba yesterday
hinted a crackdown against businesses that violate the rules was in the offing.
“Many have been asking how the government intends to bring
pricing sanity in the market, given the raging black market,” Charamba tweeted.
“My point of departure is treating the black currency market as a given, and
giving it a life of its own.
“My experience is that authors of the black market are the
same. “Anyway, the culprits are now known, including those in the
telecommunication sector. Their wiles and subterfuges are also known. The key
thing is to move in decisively, while relying on market-friendly instruments.
“I can’t overemphasise discipline in the financial sector,
including taking very drastic steps against errant banks which dabble in the
black market.”
A top government source close to the new policy
promulgation said the intention was to create a level playing field by way of
plugging loopholes created by the widespread use of foreign currency in the
economy.
“Businesses that were pricing goods and playing by the
rules have no problems whatsoever. But there are guys who have been pricing at
black market rates and benefiting from the auction system, these will be
affected and they are the ones crying,” said the official, who requested not to
be named. Standard
0 comments:
Post a Comment