Zimbabwe’s economy is partially dollarised following the government’s
decision to allow citizens to use foreign currency openly for buying goods
and services on the local market.
The directive to use free funds, referring to foreign currency received by
individuals and various organisations through formal remittances, funds
held by non-governmental organisations and embassies and offshore grants
or loans, comes after the gazetting of Statutory Instrument (SI) 85 of 2020
in the midst of coronavirus pandemic has seen the market almost fully redollarised.
This empowered producers and retailers to have leeway to openly practice
multi-tier pricing. The unintended consequence is that there is now massive
flow of foreign currency to retailers.
The majority of them use the black market rate to accept payments in foreign currency because there are not under close surveillance from the country’s law enforcement agents.
On the one hand, despite government’s insistence on the use of strictly
free funds by consumers, the majority of retailers including those in the fuel, auto, real estate and pharmaceutical, among many sectors, are pricing their products in foreign currency, probably testing government’s resolve on the Zimbabwean dollar.
Restive government workers, numbering more than 500 000 have since
rekindled their demands to be paid partly in foreign currency and partly
in local currency. This has since reached boiling point. Government is now
under growing pressure to deal with this.
If government fails to take measures to curb this, the country will migrate to total dollarisation.
On the other hand, government, has followed through, armed with
the Finance Act and is collecting taxes in foreign currency especially from
importers of selected luxury commodities, miners, tourism and hospitality
and petroleum sector.
This could be a quite demise of SI 142 of 2019, which banned the multicurrency regime, leaving the Zimbabwe Dollar as the sole legal tender in the country.
It is, however, imperative for the government to at least come up with a measured approach to fully dollarise and exercise restraint on money printing to save incomes for citizens who receive their remuneration in local currency.
Inflation for March was about 676% and demand for foreign currency has remained relatively high despite the impact of coronavirus induced lockdowns.
While the exchange rate at the parallel market was at ZWL$60:US$1, the
central banks fixed the interbank rate at ZWL$25:US$1 for an indefinite
period.
Treasury had earlier on called for a managed floating exchange rate
where banks moved to a Reuter’s system managed floating exchange rate.
Such policy inconsistency, which have been an Achilles Heel for the
government and the use of statutory instruments have brought more
confusion on the market instead of policy clarity.
Finance Minister, Mthuli Ncube, said the current arrangement would be
kept in place for as long as it takes as part of measures to restore stability and growth of the economy. The use of the free funds came barely one month after the central bank de-dollarised the economy.
The pronouncement was in plain contradiction of the SI 142 of 2019 and
other related exchange control directives that outlawed the use of foreign
currencies for local transactions.
