Emmerson Njanjamangezi, Group Features Editor 
THE increasingly noticeable lack of congruence between the country’s fiscal and monetary authorities is becoming a significant issue for organised business.
This comes as the minister of Finance, Mthuli Ncube’s latest policy interventions to shore up the volatile Zimbabwe dollar have received mixed reactions from captains of industry and commerce.
Ncube’s broad fiscal and monetary stabilisation measures, which were announced Monday came hard on the heels of a slew of other new policy steps that he introduced last month.
Reserve Bank governor John Mangudya and Finance Minister Mthuli Ncube
Among other things, the minister said this week that Treasury would now fund the Zimbabwe dollar component of the 25 percent foreign currency surrendered by exporters.
In addition, Ncube introduced a one percent tax on all foreign payments, and also cut the tax on local interbank forex transactions and point of sale Intermediated Money Transfer Tax (IMTT) to one percent.
To encourage the broader use of the local currency, he said Zesa payments and other fees to government agencies and parastatals would now mostly be paid in Zim dollars. With regards to the foreign exchange auction market, Ncube capped weekly allocations to US$5 million and directed that all winning bids be paid out within 24 hours.
Speaking to The Financial Gazette yesterday, the chief executive of the Zimbabwe National Chamber of Commerce (ZNCC), Chris Mugaga, said the new measures suggested disharmony between fiscal and monetary authorities.
“It has to be acknowledged that Zimbabwe does not have a currency problem. So, any measures that attempt to deal with currency problems are misplaced.
“The problem that we are seeing is that there seems to be a bit of disharmony between the RBZ and Treasury.
“The measures announced by … Ncube a few weeks ago, as well as the latest ones, serve as a confirmation that the central bank and Treasury have lost each other in this fight to stabilise the currency and tame exchange controls,” Mugaga said.
“The institutional discord between RBZ and the fiscus will certainly compromise the effectiveness of policies.
“It appears that Treasury is saying the Reserve Bank of Zimbabwe cannot solve monetary issues alone and they need help from Treasury,” he added.
Mugaga said the central bank had been defending the forex market for a long time and insisting that there was no excess liquidity in the market.
“From this latest statement, it’s clear that Treasury is saying the forex auction system needs an overhaul.
Christopher Mugaga, the ZNCC chief executive officer.
“In addition, …Ncube seems to be saying that banks have been creating new money through the surrender requirements.
“What’s worrying is that the market is orphaned when it comes to forex price discovery. This is because the forex auction market is heavily controlled and has failed to provide leadership in market-led price discovery,” Mugaga told The Financial Gazette — the country’s number one business publication.
The ZNCC boss further observed that the exchange volatility that the country was witnessing emanated from the “price discovery leadership vacuum” that had been created in the market.
“The real issue is that we will not have a fully functional forex auction market if there is no willing seller of forex.
“The minister of Finance is skirting the real issue here, which is the seller of forex on the market — who are the exporters.
“It’s not fair to have exporters surrender 25 percent of their export proceeds. If they are to maintain the surrender requirement, exporters must surrender not more than 10 percent of their earnings. This is because the government is suffocating the goose that lays the eggs.
“The minister of Finance has two options, he must either address issues affecting exporters or completely do away with the auction market,” Mugaga argued.
He also said it was impossible for the government to use only US$5 million to determine the price of greenbacks on the market.
“This is because only last week the total bids were at US$60 million that the industry wanted, but only US$14 million was allocated.
“And now to say only US$5 million will be allocated on the market is absurd. It’s too little. This sends very toxic messages to the market,” Mugaga added.
Africa Economic Development Strategies executive director Gift Mugano
On her part, the chief executive of the Confederation of Zimbabwe Industries (CZI), Sekai Kuvarika, said Ncube’s new measures underlined the government’s commitment to fixing issues affecting industry.
“We are seeing a lot of our input in the measures that … Ncube announced recently. To us, it shows that government values our input.
“We applaud the commitment by the government to make the forex auction market a truly Dutch system in terms of prompt payments of bids. Also, the issue on IMMT is welcome.
“The same can be said about the Treasury’s assumption of debt sitting on the central bank’s books. However, just like any other measure, we await to establish how the government will implement this,” Kuvarika said.
She added that there was also no clarity on Zim dollar duties, as well as other details on the fees and levies to be collected by government agencies.
“For us, we see this as an opportunity for the government to further consult industry on such matters to come up with clarity and details.
“Otherwise the fear is that we could be back to the period when we transitioned to a multi-currency regime where business incurred heavy losses. This is something we want to avoid.
“The efforts to shore up the local currency are commendable. But we want the government to give specifics on how they intend to do this.
“Lastly, the VAT on all manufacturers selling general goods for the export market is a killer for industry. We will seek to engage the government on this,” Kuvarika said further.
Economic analyst Gift Mugano said the government should have reduced IMTT and also implemented a “real Dutch auction system” way back in 2020.
On the issue of the 25 percent export retention, he feared that the move would present challenges for Treasury, while he also worried about the minister of Finance making monetary policy statements.
“Why is Treasury making policy pronouncements under the purview of the RBZ? In view of the fact that the auction system has been reduced to US$5m per week, isn’t this also clear evidence that the economy has dollarised? Why can’t govt just accept this new reality?” Mugano said.
Another economic analyst, Rufaro Hozheri, said the government was making “last-ditch attempts to save the local currency”.
“One thing that is clear is that the government is ready to do whatever it takes to give the local dollar more room to survive, even if it means reducing their US dollar taxes to do so.
“This gives an idea of what will happen on the currency front after the elections,” Hozheri added.
Weighing in, another economic analyst, Victor Bhoroma, said Treasury had not budgeted for the payment of the 25 percent export retention credits.
“This could lead to a wider budget deficit and it could cause more damage to the economy.
“As for the forex auction allocation limit to a maximum of US$5m a week, there is no need to limit the auction amount if it’s truly independent of government.
“Supply should determine the amount for the day. So, this means continued control,” Bhoroma said, adding that the announcement that duty on fuel would be strictly in greenbacks would increase the cost of production.
“Clearly, there is policy discord there and the government has no confidence in its own currency,” he added.
However, Bhoroma said it was not all doom and gloom, noting that Ncube had introduced some good policy measures.
“Some of the policy announcements like the reduction in IMMT, the implementation of a real Dutch auction system (timely payment, notification of funds available in advance and selecting the highest bidder), and promotion of the use of the Zim dollar are positive,” he added.
Former RBZ monetary policy committee member and economic analyst, Eddie Cross, said the measures by Ncube were not sufficient “to stem the tide”.
“We will have to wait and see what the market does. Certainly, the PMR has dropped slightly from the levels of last week. However, I think the package falls far short of what is required,” he said.
