In addition, Treasury will henceforth adopt all external
loans to the Government and continuously review domestic interest rates to
promote wider local dollar usage and savings by key economic players.
Announcing the latest measures yesterday, Finance and
Economic Development Minister, Professor Mthuli Ncube, said the interventions
have been necessitated by the resurgence of speculative macro-economic
instability in which domestic inflation is driven primarily by the skewed
preference for the use of the United States dollar as a savings currency.
The recent spate of price increases linked to wild parallel
market rates has led to the erosion of people’s incomes and is constraining
aggregate demand for goods and services.
This has piled enormous pressure on the exchange rate as
the skewed preferences have continued to increase the velocity of the Zimbabwe
dollar, said Professor Ncube.
The phenomenon has seen a growing US-dollar cash economy
and it is estimated that a large portion of domestic transactions are now being
conducted in foreign currency, he added.
This is despite the underlying strong fundamentals realised
from the comprehensive positive fiscal and monetary policy reforms implemented
under the Second Republic led by President Mnangagwa since 2018.
“It is against this background and following wide
consultations with the private sector and other stakeholders that Government
now announces the following policy measures:
(i) In order to enhance the supply of basic goods to the
public, all basic goods will no longer be subject to import licenses and will
also come into the country free of import duties and taxes.
(ii) In order to promote the banking of domestic sales in
foreign currency, the Reserve Bank of Zimbabwe will with effect from 15 May 2023,
exempt all proceeds from domestic sales in foreign currency from the 15 percent
surrender requirement.
(iii) All external loans to the Government will now be
transferred from the Reserve Bank of Zimbabwe to Treasury. The Foreign Exchange
Auction System will be further fine-tuned and will now auction a pre-announced
envelope on a pure Dutch auction basis.
Citing the importance of interest rates as a key variable
of focus and one of the main tools for monetary authorities to discourage
speculative borrowing and reduce the velocity of the Zim-dollar, Prof Ncube
said the Central Bank through its Monetary Policy Committee, will continue to
review the domestic interest rate framework to allow domestic currency savings
interest rates to be above the perceived rate of expected devaluation for
holding ZWL balances, to be attractive to savers.
“In the short-term, Government needs to immediately cause
short-term interest rates of tenors up to six months to rise sharply, with
longer-term rates remaining low, to reflect future inflation expectations,” he
said.
“This will squeeze out speculative demand for both ZWL and
USD.”
Further, Government will, going forward, entrench promotion
of the use of the domestic currency by Government agencies for their domestic
transactions by ensuring that levies and fees charged by its affiliated
agencies and service providers, are to be paid for in local currency.
Prof Ncube said the Treasury was pleased with the uptake of
both the gold coins and gold-backed digital tokens by the market and assured
the public of the confidence in both instruments, which remain fully backed by
physical gold reserves.
“Government remains committed to maintaining macroeconomic
stability and the elimination of harmful and destabilising arbitrage conditions
that have pervaded the economy at the expense of the generality of citizens,”
he said.
Meanwhile, Prof Ncube said the economy remains on the right
path with positive strides being registered in line with the National
Development Strategy (NDS1) blue-print.
“The Zimbabwean Economy remains on a firm growth path, with
all key productive sectors registering positive growth. After registering about
four percent growth in GDP for 2022, we anticipate that growth for 2023 will be
significantly higher than the initial projection of 3,8 percent.
Already, the country has achieved food security riding on
improved agriculture production backed by enhanced Government and private
sector support initiatives.
On the back of the re-introduction of the Zim-dollar, which
brought about clarity to currency markets together with a number of advantages
to the economy, among other policy steps, Prof Ncube said industrial capacity
utilisation and productivity continue to grow, with about 70 percent of goods
on the shelves now being locally produced.
Widely visible and tangible competitiveness of the local
industry is also evidenced by the notable growth in manufactured exports and
observable import substitution effects, he added.
“The broader economy, including the mining sector, has
particularly benefited from having a significant realignment of domestic costs
from the rebasing of wage costs in particular to the domestic currency,” said
Prof Ncube.
“We have seen an increase in unofficial (shadow) foreign
exchange reserves as private holdings of foreign exchange, which are available
for use in both domestic and external trade transactions as reflected by
healthy levels of foreign currency deposits in the banking sector.”
Actually, foreign currency receipts across all categories
of inflows have increased by at least 100 percent compared to a few years ago,
according to official figures, the highest level in years with foreign currency
receipts expected to top US$13 billion this year.
In an interview last night, Economist Mr Persistence
Gwanyanya welcomed the policy measures announced by the Government.
He said the Government has the power to swing the market in
the direction it desires given that it was the biggest player, accounting for
over 70 percent of expenditure in the economy.
“In a nutshell the measures are welcome, we expect to see
the clawback of the exchange rate in a big way like what happened last year
(when the Government rolled out a series of policy measures to stabilise the
economy),” Mr Gwanyanya said.
Specifically, he said gold-backed digital tokens and
physical gold coins would wop up excess liquidity, and together with the policy
decision to collect statutory levies and fees in local currency, would promote
the use of the domestic currency and support its strength.
Mr Gwanyanya noted that allowing formal businesses to
retain 100 percent of the foreign exchange collections from domestic sales
would boost the competitiveness and viability of their operations.
Further, he said the removal of import duties would also level
out the playing field and remove the competitive advantage that was being
enjoyed by informal traders who were selling cheaper products that were
smuggled and did not pay import duties.
Another economist, Professor Gift Mugano said the challenge
facing the Government was the use of the national budget to finance key
long-term infrastructure projects like dams and roads.
“The budget, being a big budget of $4,2 trillion, my
argument (has been that) it would push the rates up because you now have a significant
share of liquidity coming from the Government when you pay contractors and
service providers,” he said.
“When talking about Zimbabwe dollar liquidity, we have
contractors and service providers; the testimony of that was when the
Government black-listed about 13 companies.
“It is inevitable that they would participate in the black
market. Last year, we had quite a significant number of companies blacklisted
by the Government. It is testimony that they are participating in the black
market.
“Why is it like that; it’s because anything we are doing in
Zimbabwe, there is a significant share or component of foreign currency, so
they need to get that foreign currency, whether its road construction or what,
anything you see.”
Prof Mugano said contractors were dabbling in the forex
parallel market in order to make some profits and/ preserve value.
He said those not participating in the black market for
fear of being blacklisted, are investing in the property market to store value
for the money they earn from the projects they implement.
“The other challenge pushing the exchange rates higher are
the civil servants, who are getting a component of their salaries in Zimbabwe
dollars, which is quite significant. This time around, civil servants are
getting about $2,2 trillion of the budget, which is 52 percent.
“The civil servants are also facing a market which is under
dollarisation pressures. So with the Zimbabwe dollar they are getting, they
also want to change it into US dollars to preserve value. Every month they are
in the market, and that also creates pressure on the rate,” he said. Herald
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