Parallel market rates drop as RBZ pours new bond notes into system

Livingstone Marufu

HARARE – Parallel market rates have dropped to around 60-65 percent for RTGS transactions and 35 percent for bond notes in exchange for US dollars but Reserve Bank of Zimbabwe (RBZ) is optimistic that increased production and exports in some sectors of the economy will suppress  foreign currency shortages.

Parallel markets were hovering around 77-85 percent (RTGS) and 40-43 percent (bond notes) but with the bond notes in circulation increasing significantly, there has been a gradual decline on the rate. According to the latest data from the central bank, bond notes and coins in circulation increased to $354.20 million in May 2018 from $175.77 million in May 2017. The amount has gradually increased over the last month, so much so that select banks are now loading bond notes into ATMs.

RBZ governor John Mangudya told Business Times that the black market for forex can be suppressed if production is spread to all sectors to improve export earnings.

“Since 2016 we have been preaching about increased production in the economy and here we are: tobacco has recorded an output of 240 million kg which is the highest tobacco output since 2000. This will certainly increase exports to above $1 billion. Consequently, forex will become more available.

“With increased production in all sectors of the economy; we will certainly suppress forex black market as hard currencies will be put in the formal banking system rather than the illegal means,” said Mangudya.

The country expects gold output to be around 30 tonnes this year with artisanal miners expected to supply over 60 percent of the gold output due to 12,5 percent incentives put in place by the central bank.

Gold production in the six-month period reportedly jumped by an incredible 70 percent to 17 tonnes from 10 tonnes in the same period a year earlier.

Producers of the “yellow metal” is expected   to produce more than 12 tonnes during the second half of the season – which is traditionally the strongest half in the sector – to reach record deliveries since 1999.

“I’m happy to tell the nation that exports have surged in the first half of 2018 with gold export earnings leading the pack with over $720 million. We expect tobacco to pick up exports since the marketing season has finally ended.

“An increase is expected to over $1 billion from around $933 million last year. As we speak diamonds have also increased by 44 percent to over 1,6 million carats in the first half of 2018 from 1,1 million carats during the same period last year. This means the country is set for increased production in this area,” he said.

The increase was due to massive investments in mining and processing capacity.

The Zimbabwe Consolidated Diamond Company (ZCDC) produced 594,000 carats in the same period of 2016 and is on track to achieve its targeted full-year production of 3 million carats by the end of 2018.

Mangudya said the bank was encouraged by the significant expansion of the Zimbabwean economy over the past seven months, with most of the systemically important firms now operating above 60 percent of capacity utilisation.

Increased foreign currency earnings will help the bank give more companies forex to buy raw materials thereby reducing pressure on the general demand of foreign currency.

He said Zimbabwe was ready and willing to embrace a paradigm shift to attract investors, both local and foreign, for the total transformation of the economy and to increase production, create jobs, exports, fiscal space, access to capital and foreign finance.

Increasing production was the solution to resolving the country’s nearly two decades long economic challenges.

He said that amid depressed economic activity, low exports, current account and fiscal deficits, cash and foreign currency shortages; opening up the economy to business was the most sustainable cure for the major challenges the country has been facing.

Mangudya said retaining the multi-currency regime, enhancing nostro stabilisation to facilitate foreign payments, providing investment guarantees to protect investor funds, a seven percent tax-free bonus on non-resident transferable funds, and enhanced incentive support for gold, tobacco, cotton and macadamia.

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