‘Plunging Zim dollar will boost economy’

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BUSINESS is hopeful that the accelerating depreciation of the Zimbabwe dollar on the foreign currency auction system will help to restore Zimbabwe’s economic stability.
This comes as the government and organised business continue to collaborate on ways of enhancing the foreign currency market, following the recent turmoil, which pushed up prices and the cost of doing business in the country.

The president of the Confederation of Zimbabwe Industries (CZI), Kurai Matsheza, was among the business leaders who told The Financial Gazette this week that he was confident that the ongoing depreciation of the local currency on the forex auction system would lead to market equilibrium.

“Our reading of the movement on the auction system is that this is a correction phase and adjustment to principles of the true Dutch Auction system being adhered to by the RBZ (Reserve Bank of Zimbabwe). Over time, we believe an equilibrium will be reached where the market settles. In terms of prices, our take as industry is that these had factored in rates much higher.

“When the equilibrium is reached, we expect holders of forex to be freely trading and this hopefully will unlock the availability of forex, which will be a welcome development to all,” Matsheza said.

The chief executive of the Zimbabwe National Chamber of Commerce (ZNCC), Chris Mugaga, said the depreciation of the Zim dollar suggested that the exchange rate was not reflective of the fundamentals on the ground in the past. “There was certainly a mismatch between the supply and demand of foreign currency in the market.
“We hope the movement is a result of market fundamentals and not just noise from the market because that would be unhealthy. We hope the taps of monetary supply will also be switched off significantly,” Mugaga told The Financial Gazette.

“We need to target an average of 15 percent per quarter, not the 20 percent-plus being reported given the legacy of excess liquidity, which had steered exchange rate volatility in this economy.
“We also insist on an exchange rate determination that is sector-wide and not based on the priority list,” he added.

All this comes as the local currency has depreciated by 10,8 percent against the US dollar over the past month to about to $97.
But for more than a year, the Zimbabwe dollar had held steady against the greenback, leading to relative stability in the economy and increased industry capacity utilisation.

Addressing parliamentarians at a pre-budget consultation seminar in Victoria Falls last weekend, RBZ governor John Mangudya said authorities continued to implement necessary measures to support the Zim dollar.
He also revealed that over the past nine months to end September, Zimbabwe had generated foreign currency receipts worth US$6,1 billion — a 37,8 percent growth over the previous year.

Export proceeds during the period were US$3,4 billion, while diaspora remittances amounted to US$1 billion. Disbursements from non-governmental organisations were at US$708 million, while loan proceeds amounted to US$729 million. Income receipts were at US$103 million, Mangudya said.

He also said that the country’s current account balance was projected to register a surplus of US$1 billion in 2021, driven by a strong recovery of the global economy, strong performances in export and diaspora remittances, as well as moderated imports due to improved domestic production.
“About US$300 million is needed to purchase all the stock of reserve money of $28 billion at the current exchange.
“This is against the country’s foreign currency holdings of over US$4,5 billion. This shows that exchange rate volatility is unrelated to monetary developments. It’s behavioural,” Mangudya said.

In addition, he said, inflation was still expected to continue declining to lower single-digit levels by December 2022.
“Low inflation will assist in value preservation and guarantee certainty in budget allocations … Risks to inflation include an increase in regulated prices, global food and oil prices.

“It also includes increased global inflation and domestic behavioural factors,” Mangudya said.
In the meantime, the tough monetary and policing measures that have been taken by the government over the past few weeks, in a bid to contain the foreign currency black market, appear to be bearing fruit.

Mangudya at the weekend said the slump in illegal forex trades was due to “laudable compliance” by business, as well as effective monitoring and surveillance of malpractices by the central bank’s Financial Intelligence Unit (FIU) and the police.
“We are definitely going to continue with the engagement process with business, as well as monitoring and surveillance activities to ensure that the economy remains stable in the best interest of consumers, business and investors.

“Business needs consumers and consumers need business. So, there is need for business to practice self discipline and self restraint. We have cleared a substantial amount of the auction backlog, which is now concentrated at a few banks,” Mangudya said.
“The RBZ is committed to its primary mandate of achieving price and financial system stability. This is critical to preserve the value of our local currency and to ensure that the public is not shortchanged by indisciplined entities as we move towards the festive season,” he added.

President Emmerson Mnangagwa recently issued a stern warning to illegal foreign currency dealers, whose arbitrage behaviour had driven up prices of goods.
Speaking in Harare last week, ahead of his party’s politburo meeting, Mnangagwa said the government was currently crafting ways to curtail the parallel market.

“The issue of the exchange rate will be addressed and those found on the wrong side of the law will be dealt with severely,” he thundered.
Speaking earlier at the Zimbabwe Agricultural Show (ZAS) in Harare, Vice President Constantino Chiwenga also warned that authorities would deal ruthlessly with all forex violations.

“While government is very pleased with the continued increase in production and productivity across most sectors of our economy, I would like to urge all businesses to be responsible and disciplined in their operations.
“They should not be hoodwinked by some malcontents that are operating in the parallel foreign exchange market where foreign exchange arbitrage has become their lucrative business at the expense of the stability of the economy.

“Government will not tolerate this misbehaviour of currency manipulation by these malcontents. The relevant arms of government shall continue to deal decisively with them for the betterment of our people.

“By December, we will have dealt with all money changers and currency manipulators … There will be no mercy, ladies and gentlemen,” the no-nonsense VP added.
On his part, Finance minister Mthuli Ncube has threatened to unleash the Zimbabwe Revenue Authority (Zimra) and to also withdraw the trading licences of businesses that continue to price their goods and services using parallel foreign currency rates.

He said the involvement of Zimra was part of the government’s efforts to protect “genuine businesses and ordinary people” from unscrupulous people whose conduct was threatening the relative economic stability that was being enjoyed in the country.
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