Companies in quandary
…..suffers heavy exchange rate losses
LIVINGSTONE MARUFU
Local companies have lurched into a quandary as a result of heavy exchange rate losses, due primarily to the excessive volatility of the local currency, the Zimbabwe Gold (ZiG), which plummeted to an all-time low against the greenback, Business Times can report.
Yesterday, the value of ZiG has plunged to ZWG25.97:US$1 on the formal market from ZWG13.9987:US$1 last month.
On the parallel market, ZiG was trading at ZWG45:US$1 from ZWG30:US$1 last month.
The president of the Zimbabwe National Chamber of Commerce (ZNCC), Tapiwa Karoro, told Business Times that the devaluation of the Zimbabwean dollar will not go down well with businesses since they were unprepared for the abrupt change.
“The extent of currency losses will certainly depend on the extent of each firm’s exposure to the local currency. As with any market swing, there will be casualties. As the ZNCC, our call to the policy makers is that we minimize the impact of market shocks in our already fragile market. This can be done through continuous market updates and engagements by the authorities and market players,” Karoro said.
Economic analyst Victor Boroma weighed in saying: “It is a given that firms are going to suffer massive exchange rate losses as companies have procured goods using a lower exchange rate then the authorities devalue the local currency. This is certainly going to affect a lot of corporations.
This means a lot of companies will record losses in their financial statements following a sudden devaluation of the ZiG. With most companies having already done budgets, some corporations will cut down on operations and staff,” Boroma said.
In its quest to achieve lasting price stability, the government recently liberalised the interbank system which allows firms to access foreign exchange at market-determined exchange rates for onward transmission to their customers.
But the parallel market has moved further and the problem has remained the same.
This liberalised trading environment was going to allow the market to stabilise if the parallel market was not moving.
Market players have little confidence in ZiG, resulting in runaway exchange rate and inflation rate.