LIVINGSTONE MARUFU
The ZWL$ liquidity squeeze has seen companies paying for services wholly in the United States dollar as the economy rallies to full dollarisation.
In the past two months, monetary and fiscal authorities have introduced a raft of measures to halt the sharp depreciation of the local currency which fuelled a spike in prices of basic goods and services.
The measures, which among others, include the payment of quarterly tax obligations in local currency, have stabilised prices with the dollar trading at ZWL$4505.42 this week from ZWL$4771.38 in the previous week.
Confederation of Zimbabwe Industries (CZI) president Kurai Matsheza told Business Times that it is high time authorities work out an optimal balance on liquidity.
“Most of our non-exporting members have received bills in ZWL$ but they paid in US$ as they couldn’t access the local currency due to the current squeeze. Most companies have resolved to continue paying in US$ until they get the local currency to pay for services,” Matsheza said.
It is understood that various companies paid wholly US$ during the last month and most likely this month as firms do not have adequate local currency to pay salaries.
Government which is advocating the uptake of the local currency has paid civil servants US$300 and US$150 in local currency.
Economist Gift Mugano said authorities should strike a balance on ZWL$ liquidity as the current starvation has “lowered the coffin of the ZWL$ and one more pronouncement is needed to bury it underground”.
“Instead of creating demand for ZWL$, various companies have shelved ZWL$ and have gone full throttle US$; this means the government has promoted full dollarisation,” Mugano said.
Economist Joseph Mverecha said there is a need to strike a balance in liquidity management as the current liquidity squeeze could accelerate dollarisation.
In its latest report, the CZI said the government should strike a balance between supply side and demand side of the measures.
“Excess ZWL$ will cause an exchange rate depreciation while a market starved of ZWL$ might also entrench dollarisation and retard growth,” CZI said.
CZI said the appreciation of the ZWL$ at the official market before convergence had happened appears to have been mainly driven by the need to settle quarterly payment dates in June, which is not seen as permanent by the market.
“This could explain why the other market players who participate in the parallel market were not as desperate to offload their US$. This means that the authorities should probably have focused more on creating stability of the ZWL$ on a sustained basis by allowing enough ZWL$ in the economy to reach convergence before embarking on any excessive mopping of the ZWL$, which would have seen both markets feeling the liquidity pinch.
“The appreciation of the formal exchange rate before market convergence has been attained can thus be a cause for concern as a huge parallel market premium will see the official market and official businesses becoming less attractive again to US$ holders compared to the parallel market,” CZI said.
“What is critical now is ensuring that the implementation of the current reforms is geared at convergence between the official and parallel market first, and then the appreciation objective follows.”
But Finance and Economic Development deputy minister Clemence Chiduwa said the government has a good liquidity management system in which the authorities will do open market operations interventions to keep the rate at the optimal levels.
