Glitches rock forex auction

PHILLIMON MHLANGA

Zimbabwe’s central bank is taking at least two weeks to settle companies’ funds from the foreign currency auction system with analysts saying it reflects inefficiency in the system, it has been established.

Business Times first reported a fortnight ago that there were serious fractures in the system.

Several company executives told Business Times that there were glaring glitches with the central bank failing to efficiently release funds from the auction system.

Reserve Bank of Zimbabwe (RBZ) governor, John Mangudya, who unveiled his 2021 monetary policy statement last week, cracked everything wide open, admitting that “more still needs to be done” on the forex system.

“Working closely with banks, the Bank [RBZ] has managed to resolve the glitches and payment backlogs experienced last year by some banks’ customers in the settlement of funds from the auction.

The Bank has agreed with banks to ensure that foreign currency allotments are settled 14 days from the date of auction,” Mangudya said.

“This clearing period will enable the Bank and banks to fund the allotments and for banks to undertake the requisite background checks on their customers, where necessary.”

Mangudya said the bulk of funds come from export earnings which has been the main source of funds for the auction through voluntary liquidations and the surrender requirements on exports and domestic foreign currency transactions.

“Of the total amount allotted on the auction to date, more than 70% has come from surrender requirements on exports and domestic foreign transactions,” Mangudya said.

“The upward review in the surrender ratio for exporters from 30% to 40% and the removal of the 60- day liquidation requirement on unutilised export earnings in January this year was meant to increase the supply of foreign currency onto the auction from the exporters and at the same time providing flexibility in the usage of foreign currency earnings.”

Mangudya said while more still needs to be done in this area, the evident stability of the exchange rate following the introduction of the foreign exchange auction system on 23 June 2020 has minimised distortions in pricing by curtailing speculative pricing and parallel market exchange rate indexation of prices by businesses.

Over US$700m has been allotted since June last year.

Mangudya said a significant proportion of the total amount allotted has been earmarked for strategic sectors for imports of essential goods, especially raw materials, equipment, pharmaceuticals, chemicals, fuel and electricity.

To date, more than 70% of total foreign currency allotted has gone towards import of raw materials, machinery and equipment while other essential and strategic imports, including pharmaceuticals and chemicals, fuel and electricity have taken around 11% of the total allotments.

In light of the glitches being experienced, Mangudya accused some companies of abusing the auction system saying:

“The Bank shall continue refining the foreign exchange auction system taking into account market fundamentals as well as closely monitoring the utilisation of funds from the foreign exchange auction system and the economy at large.”

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