– Business Weekly
The Reserve Bank of Zimbabwe (RBZ) has disbursed US$1,176 billion for critical imports to over 3 000 importers since the inception of the weekly auction in June last year.
The central bank issued an update this week showing that it has sold just over a billion United States dollars on the main auction and roughly US$1 million on the SMEs platform.
A total of 1 774 large firms and 1 334 SMEs have received allocations under the bank’s priority list allocation framework for key imports. The update covers June 2020 to April this year.
“This statement is being issued in line with the bank’s commitment to regularly keep the public informed on developments under the foreign exchange system,” Governor Dr John Mangudya said on Wednesday.
Only on Tuesday, allocations at the auction floor breached the US$40 million mark, after US$41,6 million was disbursed to importers for a variety of imports.
Most of the funds have been allocated towards raw materials, machinery and equipment, consumables. services, retail and distribution, food, beverages, fuel, electricity, gas, pharmaceuticals, chemicals and paper and packaging.
But some economic analysts have bemoaned the priority list used by the bank to allocate foreign currency to qualifying entities arguing the economy is made up of over 12 000 registered firms.
Against this background, the economists argued that the auction must be expanded to cover other critical economic agents who require forex to reduce black market activities.
Dr John Mangudya recently said the bank’s weekly auction system will be sustained as the preferred mechanism of formally allocating scarce foreign currency to the market.
The central bank chief also said that even skeptics must now admit that the auction system was not and has never been a fluke and that the platform will be around for the long term.
Dr Mangudya said the auction system had disbursed about US$1,14 billion for key imports that include raw materials, fuel, machinery and equipment since inception last year.
The central bank governor said companies must not put themselves under unnecessary pressure by over ordering and stampeding each other to get foreign currency from the auction market, as funding will always be available.
The central bank is getting health inflows of hard currency from the 40 percent mandatory export surrenders and forex liquidations from 20 percent of all retail sales conducted in the country using foreign currency.
Further, the Government will now liquidate at least 15 percent of its total foreign currency receipts that it collects through all fees, levies and taxes that are paid for in hard currency; this as a way to support the auction system.
And in order to clear backlogs of auction bids that were allotted but have yet to be funded due to liquidity issues, Dr Mangudya said last week that banks will retain half the amount from the 40 percent mandatory export surrender.
Dr Mangudya said about 95 percent of imports into Zimbabwe were now being financed through the auction, limited interbank activity and foreign currency accounts (FCA) while the balance of only 5 percent came from elsewhere.
The governor said this means that the auction system was sustainable and is working. It has also emerged though that as local businesses started getting rightly priced forex from the auction, many went on an (imports) spending spree.
Many companies, Dr Mangudya said, that are obtaining foreign currency from the auction market now unnecessarily maintain excess orders and come to the auction market every week thinking the auction will one day be gone.
The central bank governor said there was no need for any business to over order any imports because the foreign currency will continuously flow to the service industry.
He said the monetary authorities were happy about the falling inflation since the introduction of the auction system in June last year, leading to stability of the Zimbabwe dollar. Monetary authorities, Dr Mangudya said, were not concerned about rates convergence, but making sure that inflation drops to sustainable levels in line with the regional benchmark.
The central bank expects that Zimbabwe’s once galloping inflation (annualised) will plunge to the SADC benchmark threshold of between 5 percent and 7 percent by the fall of next year.
On account of policy measures the Government and RBZ are implementing, Dr Mangudya said they expected inflation to fall to between 10 and 18 percent by the end of this year.
Zimbabwe’s annual inflation shed 45.85 percentage points in April to 194.70 percent, as the rate of increases in prices of goods and services keeps trending down. according to data from the Zimbabwe National Statistics Agency.
“When you deal with inflation, it brings (economic) stability and it is good for savers, investors and it is good for consumers because the currency will be stable’ therefore, it is good for everyone,”
Dr Mangudya said earlier.
He also said the central bank will work hard to ensure that the country’s financial sector stability, help banks to offer digital services and avoid fall into traps of money laundering and financing terrorism.
The governor said the economy was now firmly on a sustainable path to recovery and growth, pointing out that Zimbabwe’s economy had since exited the period of fragility around September-October last year.
A sign of an improving economy, he said banks were now sitting on US$1,2 billion in general reserves, which they could use to lend to productive sectors and make healthy profit margins without borrowing outside the country.
To maintain the prevailing macroeconomic stability and ensure sustainable growth, Dr Mangudya said the mentality should now shift towards
“production, production and productivity”.