Industry wants ZWL$ tax payment

LIVINGSTONE MARUFU

Local industry is calling for the government to start collecting various taxes in local currency to create demand and shore up the Zimbabwe dollar to halt the redollarisation juggernaut.

The ZWL$ has lost its function as a store of value and economic agents no longer want to hold it and in some cases, the ZWL$ is being completely rejected in the informal sector.

The local unit has depreciated to ZWL$892.63 per US$1 on March 1 2023 from ZWL$124: US$1 a year ago.

Sekai Kuvarika, the Confederation of Zimbabwe Industries (CZI) CEO, told Business Times that currently, there is no demand for the local currency, especially among those that earn foreign currency, as the dual economic nature means that they can do all transactions in US$.

“PAYE [pay as you earn] would be a good start as this would bring many institutions including foreign missions, into the foreign exchange market as sellers,” Kuvarika said.

She said there is an urgent need to at least restore the function of the ZWL$ as a medium of exchange thereby controlling ZWL$ inflation.

Kuvarika called for the full liberalisation of the Willing Buyer Willing Seller platform to make it a market-determined exchange rate.

She said there is a need for the smoothening of government ministries’ payment methods, to avoid liquidity disruptions from simultaneous payments at some specific point due to delays and tight money supply control, including both narrow and broad money.

Analysts said the government gave a wrong signal to the market, as it also appears to be more determined to get US$ at the expense of its currency.

Economist Joseph Mverecha told this publication that there is no evidence, micro or macro, that the economy has at any point in the recent past experienced sustained and high local currency aggregate demand.

“The economy is not overheating and has no surging local currency aggregate demand [granted, there is US$ demand driven more by the US$ cash informalisation].

“Zimbabwe dollar’s real demand for money in 2022 was at least 20-24% below 2019 levels. Important to remember that local currency aggregate demand took a nosedive following the currency reforms in the last quarter of 2018. By all accounts, re-dollarisation is gaining momentum, unassailable,” he said.

Mverecha said there is a need to reduce interest rates from 150% to encourage people to borrow in ZWL$ terms.

“It will require a mighty miracle to save the local currency. To give the local currency a fighting chance, authorities must urgently review interest rates to 50 – 60% to promote some lending in local currency while simultaneously increasing demand for local currency through taxes. Both policy shifts are urgent.

“If implemented judiciously, concurrently, and consistently, there may yet be a chance for local currency revival, however remote and fast receding,” Mverecha said.

In its latest report, CZI said the economy is moving towards full dollarisation which will eliminate persistent inflation challenges being faced by Zimbabwe. However, it said the cost of full dollarisation tends to outweigh the benefits.

“Economic contraction, as the country migrates to a high-cost economy which will make it difficult for local firms to compete on the international market; loss of Monetary Policy independence, especially the ability to influence the growth trajectory of an economy using the usual monetary policy tools; curtailing the central bank’s lender of last resort function as it might not be able to act to assist banks in distress and avert financial system crises and huge current account deficits as it becomes cheaper for economic agents holding US$ balances to import will be some of the costs of full dollarisation,” CZI said.