‘ZWL payments clampdown accelerates dollarisation’

11

FISCAL authorities’ clampdown on ZWL payments in the third quarter is unintentionally fast-tracking dollarisation, a local investment and research firm has said.
The tight stance on payment of government service providers and the mopping up of ZWL$9 billion from the economy through gold coins starved the market of liquidity and helped reduce money supply growth.
In its recent Q3 Zimbabwe Investment Notes, Imara Asset Management said its conclusions were based on weeks of engagements with several executives from both the private and the listed space.
“Two large food manufacturers we met have seen their USD revenues rise from around 35 percent of sales earlier this year to over 70 percent since August. Furthermore… product has been directed to the USD cash economy and hence physical cash intake has risen.
“Other companies have faced similar experiences and a quick trip to various supermarkets has confirmed this move. Most are relatively empty of customers largely as their prices are too high. In ZWL terms they are pricing at over $850 which is likely to be what they bought product at from middlemen and, in USD terms, the exchange rate they are using to price goods is incorrect for fear of falling foul of the authorities/FIU.

“USD prices are therefore too high. As supermarkets, it makes more sense to take the one-off price hit and get stock moving again as fast as possible and before their customers disappear altogether,” reads part of the research note.
As a result of the contractionary measures by the central bank, Imara said estimates were that VAT and IMTT receipts have plummeted in recent months as trade has dollarised and intensified informalisation.
“That must be putting significant strain on Zimra and the fiscus in general. Businesses have been so short of ZWL that any ZWL debtors that they had on their books they have been forced to clear by accepting USD Nostro which in turn they have used to pay off their creditors.
“A scan of the statistics produced by the RBZ with data from the National Payments System confirms the decline in formal ZWL transactions in volume and value terms both through the banking and the mobile banking platforms; they have nearly halved since the end of 2021,” further reads part of the statement.
According to Imara, as at the end of December, converted to USD, the total value of transactions that went through the formal National Payment System (NPS) was US$5,3 billion ― comparing quite favourably with an average of US$4,2 billion per month over the year.
“During the same month a total of 131 million transactions were processed with an average of 120 million transactions being processed per month during the year. These had plummeted to US$1,9 billion and just 36 million transactions per month in September 2022.
“Interestingly, during the same period, the value of auction allocations dipped from a peak of US$237 million in August 2021 to just over US$50 million in September 2022. Juxtaposed against well performing corporates, this to us is one of the indicators of an economy that’s significantly informalised with a notable number of transactions being for cash.”
According to Zimbabwe’s biggest industrial lobby group in terms of membership, the Confederation of Zimbabwe Industries’ (CZI) inflation and currency development update for September, the Zimbabwe dollar was scarce in the market and the foreign exchange market was headed towards convergence.
“Convergence of the exchange rate and scarcity of the ZWL will result in increased usage of the US dollar in the economy. The country is slowly dollarising and while this will have a positive impact on inflation, the economy as a whole will be the biggest loser. At the beginning of the year in January, foreign currency accounts (FCA) as a percentage of deposits in broad money (M3) was 42,2 percent and it increased to 57,2 percent in July 2022,” CZI said.
The organisation also said that foreign currency accounts as a percentage of transferable deposits increased from 47 percent in January 2022 to 63 percent in July 2022.
“This clearly shows that the USD is becoming more dominant as each month passes. Deliberate policies by the authorities to reverse this trend are long overdue.”
newsdesk@fingaz.co.zw