The new legislation does allow a 10 percent addition to the
interbank rate, which will cover any changes between the customer paying and
the seller buying new stock and the margin banks charge. Interbank rates are
set within a banking system adjusting the rate to match what willing buyers and
willing sellers demand and can supply.
There is no intervention by the Reserve Bank of Zimbabwe or
the Government in setting this rate. Interbank rates are what almost every
country in the world uses to set its exchange rates.
The present multi-currency regime, which has not been
changed, is guaranteed for the life of National Development Strategy 1 (NDS1),
so businesses are assured there will be no sudden dedollarisation during the
period, a factor that was worrying some and causing a degree of uncertainty and
adding to pressure in the black market.
President Mnangagwa used his powers to sign off on the
Presidential Powers (Temporary Measures) (Amendment of Exchange Control Act)
Regulations on Monday. They apply for the life of the NDS 1 that came into
effect at the beginning of the year and runs until 2025.
The new law was gazetted as Statutory Instrument 118A of
2022. Parliament will need to approve the regulations to make them permanent
law but this should not be a problem considering the Government majority.
The legal changes now back the collection of measures
explained on Monday by Finance and Economic Development Minister Mthuli Ncube
to restore market confidence, stabilise the Zimbabwe dollar, which has come
under attack from speculators and arbitrage, rein in resurgent inflation and ensure
discipline in the economy.
The huge civil penalties, $20 million in local currency or
the equivalent of the value of a breach in foreign currency pricing, whichever
is higher, provide the authorities with some serious teeth to end any attempts
to use black market exchange rates when setting prices.
Civil penalties are far simpler to impose than criminal
fines, since they only require proof on the balance of probabilities rather
than proof beyond reasonable doubt and can be imposed by an official, rather
than a court.
Many of the provisions are already in existence, as settled
policy, but are now officially law.
On the subject of maintaining the existing multi-currency
regime that allows buyers to use local or foreign currency, the regulations read:
“The provisions of the Schedule, insofar as they express or impliedly permit
the settlement of any transaction or payment for goods and services in foreign
currency, shall be valid for the period of the National Development Strategy 1
(the national economic plan for the period from January 2021 to December 2025,
published on November 16, 2021).”
In terms of the law, corporates and individuals can
continue to receive credit denominated in any foreign currency from an
authorised dealer or any other banking or financial institution but from now on
repayment must be made in the same currency. This prevents what were perceived
as risks when repayment could be in a different currency from what was lent.
Prior to the setting of the interbank rate from the beginning
of August, local prices were supposed to be set using the prevailing average
auction bid. However, many businesses have been pricing their goods and
services using black market rates.
However, the interbank market was allowed to expand in May
and shortly afterwards the Reserve Bank of Zimbabwe brought the auction rate
into alignment with this independent rate by rejecting a lot of bids that were
considered too low.
The midrate for the Zimbabwe dollar, the halfway point
between what banks bought and sold in foreign currency, was trading at 365,2
per US$1 on the interbank market yesterday.
A “person shall be guilty of a civil infringement if he or
she, being a seller of goods or services, offers such goods or services at an
exchange rate above 10 percent of the prevailing interbank rate published by
the Reserve Bank of Zimbabwe,” an excerpt from the law says.
The regulations make non-compliance with using this
interbank rate severe. In the event of non-compliance, “the civil penalty shall
provide for a combination of a fixed penalty of 20 million Zimbabwe dollars or
an amount equivalent to the value of the foreign currency charged for the goods
or services in question (whichever is the greater amount)”.
While the guilty business is looking for this sort of cash,
the bill keeps mounting by 5 percent a day for up to 90 days, so those who do
not pay quickly could face a bill several times their $20 million.
Prof Ncube said on Monday that continuing the use of
multi-currency would help the country stem rising inflation, now at 191,7
percent and restore confidence in the economy.
The annual inflation rate, driven largely by the Zimbabwe
dollar’s depreciation against major currencies and also the impact of the war
in Ukraine, which has disrupted global supply chains, has threatened to track
back after touching a post-dollarisation high of 837,5 percent in 2020 before
progressively trending down due to measures policies implemented by the
Government.
“The market lacks confidence that the multi-currency system
is here to stay for the foreseeable future. To eliminate speculation and
arbitrage based on this issue, the Government has decided to embed the
multi-currency system and the continued use of the US dollar into law,”
Minister Ncube said.
The minister also stressed the point that pricing should
now strictly be based on the interbank rate and that while economic agents can
price their goods in any of the approved currencies, the equivalents of the
prices should be based on the ruling willing-buyer willing-seller interbank
rate.
The legislation immediately followed the series of fiscal
policy interventions announced by Minister Ncube on Monday to restore market
confidence, stabilise the exchange rate and rein in resurgent inflationary
pressures, both internal and external.
This also came as businesses had been clamouring for
clarity on the Government’s position regarding de-dollarisation, which
commenced after the currency switch back to the domestic unit in 2019. Zimbabwe
had since 2009 been using a multicurrency regime, dominated by the US dollar.
Authorities indicated, after reintroducing the local unit,
that de-dollarisation was going to be a process and not an event, further
stressing complete de-dollarisation would only be considered when all the
fundamentals are in place and at the right time.
However, the Government’s decision to charge for certain
services and statutory obligations, including duties and levies, while
preaching the de-dollarisation gospel was misread by some economic agents as
reflecting indecision on the exact currency regime authorities wanted to
follow.
Zimbabwe National Chamber of Commerce (ZNCC), one of the
country’s largest business lobby groups chief executive, Chris Mugaga, said the
Government had recently responded commendably by moving to address concerns
among businesses for clarity on the de-dollarisation path.
“This was necessary . . . everyone was talking about the
de-dollarisation plan, to say can you tell us the story of where we are
going in respect of currency given that
we are having mixed signals.
“So, after legislating, through the Presidential Powers
Act, the story is clear that the Government is sincere in making sure it saves
the local currency.
“So, the only debate we can have in terms of economic
policies can only support a piece of legislation, which is already in place
now. That level of sincerity, we cannot really discount it. It’s vital, we
obviously welcome the move.
“What is necessary is to put in place concrete measures to
support the legal system, which has been put in place. So, the legal instrument
is a very necessary piece of legislation on our route to continue using the
multicurrency,” Mr Mugaga said.
He added that it was critically important to support the
new legislation with sufficient, credible and quality policies, which would see
the Government and private business working together to achieve the desired and
mutual outcome.
Economist, Professor Gift Mugano, said the legislation,
apart from providing certainty on sincerity of the Government to maintain the
multicurrency regime through to 2025, provides the legal basis for transition
from the auction rate centred pricing system to the willing-buyer willing-seller
pricing linked framework. Herald
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