Timely boost for price stability

14 May, 2023 - 00:05 0 Views
Timely boost  for price stability

The Sunday Mail

“Overall, it is quite possible to restore stability in Zimbabwe. There is a need to ensure that the announced measures are implemented.”

Business Reporter

Measures announced on Thursday to tackle resurgent price and exchange volatility will enhance the viability and competitiveness of formal businesses, as well as restore the affordability of basic goods, market watchers have said.

Last year, Government had to make similar interventions to restore sanity after prices of goods and services rose in sympathy with the depreciation of the Zimbabwe dollar.

As part of new measures to rein in currency depreciation and price increases, Government last week scrapped import duty on basic commodities and allowed businesses to retain 100 percent of their foreign currency receipts from domestic sales.

From tomorrow, businesses will be exempt from the 15 percent forex surrender requirement.

All basic goods will no longer be subject to import licences and can now be imported duty-free.

Finance and Economic Development Minister Professor Mthuli Ncube also announced that the foreign exchange auction market will be further fine-tuned into “a pure Dutch auction” through auctioning a “pre-announced envelope”.

Measures will also be instituted to restore real savings in the economy.

“The Reserve Bank of Zimbabwe, through its Monetary Policy Committee (MPC), shall continue to review the domestic interest rate framework to allow domestic currency savings interest rates to be above the perceived rate of expected devaluation for holding Zimbabwe dollar balances to be attractive to savers,” said Minister Ncube.

In the interim, Government will sharply increase short-term interest rates of tenors of up to six months.

Long-term interest rates will, however, remain low to reflect the future inflation expectations for both the US and Zimbabwe dollar.

Government has since made a commitment to promote the growth and wider use of the Zimbabwe dollar in domestic transactions by ensuring that levies and fees charged by its affiliated agencies are paid for in local currency.

The authorities expect the recently introduced gold-backed digital tokens to tame inflation by providing an alternative investment option.

By Friday, the new instruments had mopped up more than $14 billion from the market.

Added Minister Ncube: “Government, through the Reserve Bank of Zimbabwe, shall continue to assure public confidence in both instruments by ensuring that at all times the gold coins and gold-backed digital tokens remain fully backed by physical gold reserves.”

All external loans sitting with the central bank have since been transferred to Treasury to free up forex resources at the apex bank.

Mr Persistence Gwanyanya, an economist and member of the RBZ’s MPC, said Government had intervened “to deal with the rapidly deteriorating stability”.

“Commendably, the interventions are focused towards the formal business sector, which seems to bear the biggest brunt of market volatilities. The removal of import permits on 14 selected commodities is seen as easing importation of these by, especially, formal businesses,” he said.

“The removal of import restrictions and duties is necessary to restore the competitiveness of formal businesses that are currently affected by smugglers, mostly in the informal sectors.

“Importantly, the measures will result in increased competition on mainly pricing and quality, all to the benefit of the final consumer.”

Given the wide gap between the parallel and formal exchange rates, Mr Gwanyanya said, the 15 percent surrender requirement was now seen as an additional tax and its removal will enhance viability. He said fine-tuning the operations of the foreign exchange auction market to a pre-envelope and true Dutch auction system would deal with arbitrage opportunities in the currency market.

The transfer of all external loans to Treasury, he added, would liberate foreign currency resources at the central bank and allow it to direct all holdings to resource the weekly auction system.

Levying taxes and fees in local currency is envisaged to increase demand and usage of the Zimbabwe dollar across the economy.

“Overall, it is quite possible to restore stability in Zimbabwe. There is a need to ensure that the announced measures are implemented.”

Economist Professor Gift Mugano said the challenge facing the Government was the use of short-term instruments and the national budget to finance long-term infrastructure projects such as dams and roads.

“The budget, being a big budget of $4,2 trillion, my argument (has been) it would push the rates up because you now have a significant share of liquidity coming from the Government when you pay contractors and service providers,” he said.

He also said some employees were converting their local currency salaries to US dollars under dollarisation pressures.


Confederation of Zimbabwe Retailers president Mr Denford Mutashu said the new measures were a welcome relief to businesses and consumers.

“What the Government has done is to restore power back in the hands of the general public and the consumers, and they can make informed purchasing decisions without having to be bound by bureaucratic terms and conditions that the local market has been churning day in, day out,” he said.

“For example, there has been a lot of speculative pricing bordering around the parallel market exchange rate. Even some corporates that may have been accessing foreign currency from the auction have not been extending the favour to consumers through favourable and affordable prices. So, we applaud the Government for taking such hard decisions, which certainly are going to ensure improved supply of basic commodities, which will further reduce the price pressures due to limited supply that has been obtaining in the market.”

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