Free funds boost for auction

22 Nov, 2020 - 00:11 0 Views
Free funds boost for auction Dr Mangudya

The Sunday Mail

Business Reporter

The move by monetary authorities to allow the use of free funds has paid off as they now form a significant chunk of the foreign currency driving industry.

The US dollar can now be used for local transactions together with the local unit, which was reintroduced last year.

Free funds constitute 30 percent of total export receipts since the foreign currency retention for exporters is pegged at 70 percent.

“The liberalisation of free funds that was done through Statutory Instrument 85 of 2020 has helped this economy significantly because Zimbabwe is currently earning around US$150 million in cash on a monthly basis; that is US$90 million from Diaspora remittances and about US$60 million that is paid to artisanal gold miners on a monthly basis,” said Reserve Bank of Zimbabwe Governor Dr John Mangudya during a Parliament of Zimbabwe organised pre-Budget seminar held recently in the capital.

“That cash is in this economy. And the best way for that cash to come to the banks and to circulate was that we liberalised the use of free funds so that the money comes into the banks, it circulates in the economy, goes into the auction system and the economy goes forward.”

By extending the Intermediated Money Transfer Tax, more commonly known as the 2 percent tax, to foreign currency transactions, authorities ensured that tax can be collected in the currency of use.

Dr Mangudya said the central bank’s current monetary policy is based on three pillars — price stability, exchange rate stability and financial stability.

Plans are currently underway to mobilise lines of credit to support the auction system.

“We need to ensure that we do domestic foreign exchange mobilisation, which is required in the auction system. We are sustaining the auction from the 30 percent forex surrender requirements for domestic foreign exchange sales.

“But we need banks, Government and ourselves to be able to mobilise lines of credit to ensure that we sustain the auction system,” he said.

“We need to broaden and deepen the mobilisation of foreign exchange receipts through exports, through Diaspora remittances and any other flows, as this is critical to maintaining the prevailing exchange rate stability.”

The stability that has been entrenched through the various monetary policy measures, he added, will underpin the national budgeting process — beginning with the 2021 National Budget — as well as the recently launched economic development blueprint, National Development Strategy 1 (NDS1).

Confederation of Zimbabwe Industries (CZI) says monetary authorities need to keep a tight leash on money supply growth to maintain the current stability.

“A consistent money supply target that brings back confidence and supported by high levels of fiscal discipline is adequate for exchange rate stabilisation in Zimbabwe,” said the industry representative body.

“The ballooning or overshooting exchange rate, which is mainly driven by confidence issues and amnesty of the previously suppressed rate embedded in expectation, will subside and stabilise if authorities stick to tight money supply and fiscal discipline,” said CZI.

“For long-term planning, central bank independence can help bringing back the lost confidence, hence making money supply targeting a more effective tool for managing both exchange rate and inflation.”

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