PHILLIMON MHLANGA
The Reserve Bank of Zimbabwe (RBZ) yesterday’s weaned itself from subsidies on gold saying such funding should come from the national budget as it dumped quasi-fiscal activities to aid the bank’s disinflation programme.
RBZ has been supporting small scale miners under the Gold Development Initiative Fund to ramp up production of the yellow metal, the economy’s single largest foreign currency earners.
The fund had helped small scale miners resulting in gold deliveries of 17 tonnes last year ahead of primary producers who delivered 10 tonnes.
In a statement after the bank’s Monetary Policy Committee meeting held yesterday, RBZ governor John Mangudya said the subsidies would be financed directly from the State budget.
This is a hedging mechanism to protect against shocks such as destabilised exchange rate and high inflation.
Although the central bank has been intensively promoting the quasifiscal activities this has not brought the desired results as both producers –primary and secondary gold producers – have resorted to smuggling their gold to regional and international buyers instead of delivering all their gold to the country’s sole buyer Fidelity Printers and Refiners.
Instead, miners who contended that the centralised gold buying system does not give them fair value for earnings and want Fidelity to compete with other official players. They claim the monopoly by Fidelity was to blame for the sprouting of illicit gold trading on the parallel market and smuggling.
They also claimed the monopoly by Fidelity Printers had opened up the gold mining sector to the exploitation of players.
The miners, especially the small scale players have upstaged the big mining houses in terms of gold delivered to Fidelity, are believed to be taking their gold outside the country where offers are lucrative.
This resulted in the government failing to meet its target on gold deliveries of late.
“The MPC agreed to uphold its position that government subsidies, such as the gold incentive should be financed from the national budget without recourse to central bank financing,” RBZ governor, John Mangudya said after deliberations of the MPC yesterday.
The central bank also wants to stabilise the foreign exchange rate, which has seen the local currency losing value.
It has lost more than 500% of its value since February 2019 when the interbank market opened trading at ZWL$2.5:US$1.
But, by close of business yesterday the Zimbabwe dollar was trading at ZWL$17 to the United States dollar on the interbank market.
On the parallel market the Zimbabwe dollar was trading at ZWL$24 to US$1.
“The committee noted that failure to adhere to this principle would destabilise exchange rates and disrupt the inflation management programme adopted by the Bank,” Mangudya said.
The outcome of the MPC is believed to have been influenced by the acute shortage of foreign currency.
Government has been refusing to liberalise domestic gold marketing and buying saying this would negatively affect the flow of foreign currency into the economy after miners demanded that it should end the monopoly of Fidelity Printers and Refiners, which is a subsidiary of RBZ and sole gold buyer in the country
