Striking the right chord

Finance and Economic Development minister Mthuli Ncube this week directed government agencies and parastatals to charge fees in Zimbabwe dollar in a bid to make the local unit a currency of choice in transactions.

Payment of electricity tariff by non-exporters will now be in local currency so will be customs duty with the exception of designated or luxury goods and when the importer opts to pay in foreign currency.

Treasury, Ncube said, will now fund the local currency component of the 25% foreign currency surrendered by exporters in order to “eliminate the creation of additional money supply”.

The foreign currency collected from the 25% that is surrendered will now be collected by the Treasury and utilised in servicing the foreign currency loans assumed from the Reserve Bank of Zimbabwe.

The measures announced on Monday came, as the greenback had become the preferred currency with 70% of local transactions in the United States dollar signalling that the dollarisation juggernaut was in full steam.

The measures also come as the local currency has been depreciating against major currencies, notably, the dollar resulting in the spike in prices of basic goods and services.

Critics have in the past blamed money supply growth for quickening the depreciation of the local currency, a charge the central bank vehemently denied.

Ncube this week had a different view saying the assumption of external obligations and implementation of non-inflationary financing of liabilities, coupled by sourcing of additional resources, “will go a long way in reducing money supply growth and its impact on exchange rate depreciation and price increases”.

There have been concerns that the central bank has no business in buying the foreign currency surrendered by exporters and the move would force the apex bank to print money and finance the purchase, which is inflationary.

Ncube also directed the foreign currency auction to be limited to US$5m and winning bids to be paid within 48 hours. The platform has lost its relevance as it has failed to follow the true Dutch auction system in which the highest bidder wins. Instead the platform is using the weighted average.

The central bank had also taken the flak by auctioning what is not there leading to delays in settlement.

Critics say the platform has lost its relevance and are of the view that the reduction in the amount auctioned signals that the platform is on its way out.

Ncube should be credited for reducing the local interbank foreign transaction IMTT to 1% and the POS IMTT tax in foreign currency to 1% in order to promote the banking of foreign currency by the informal sector promoting the use of the local currency.

Monday’s measures could be the beginning of the end of the central bank’s quasi-fiscal operations.

Zimbabweans have scars of previous quasi-fiscal operations that drove the economy into hyperinflation in the period 2007-2008. Memories are still fresh of a period that created unhappy millionaires, billionaires and quintillionaires.

In recent reports, the International Monetary Fund implored authorities to address the “Reserve Bank of Zimbabwe’s quasi-fiscal operations to mitigate liquidity pressures”.

The message finally reached Treasury corridors.

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