THE Reserve Bank of Zimbabwe (RBZ) has said businesses must continue accepting payment in foreign currency to ensure the elusive hard currency keeps circulating in the formal sector.
RBZ Governor Dr John Mangudya made the impassioned call in an interview yesterday with The Herald Business and Finance, as its weekly foreign exchange trading platform, the auction system, turns one-year-old today.
He said the auction system, which started with trading sessions for large firms and shortly introduced a parallel platform for small and medium enterprises (SMEs), had managed to stabilise prices and the exchange rate.
Dr Mangudya said the auction, which the central bank operationalised on June 23 last year, had stabilised the economy, created a dependable source of forex and brought about a market-led exchange rate.
Thus far, the auction system has cumulatively allotted slightly more than US$1,1 billion to key sectors of the economy for the procurement of key imports that include fuel, raw materials, machinery and equipment.
Notably, the auction system dovetails into the cocktail of economic reforms (including currency), the new dispensation embarked on since inception in 2017 to reset the economy on a path to recovery and growth.
The stability in prices (ultimately inflation) and market determined exchange rate have forced once galloping inflation rate to start trending down from a post dollarisation high of 837 percent in July 2020 to 162 by May 2021.
Dr Mangudya has forecast Zimbabwe’s inflation to continue falling rapidly, anchored by monetary and fiscal discipline, and especially after an overly good rainy season that ensured the bumper harvest this year.
The sharp drop in the rate of inflation, amid more stable and predictable pricing, could see the annual rate reducing to below 55 percent by end of next month and to single digit by year end.
“We want to encourage formal businesses to continue to accept payment in foreign currency so that foreign currency continues to circulate and come through normal channels,”
the central bank chief said.
He, however ,noted part of challenges faced by the bank was violation of standing rules for trading in forex, which he said had been resolved through SI 127 to penalise outliers.
Dr Mangudya said paying heed to the monetary authorities’ clarion call has mutual benefits for the economy, projected to expand 7,4 percent this year, businesses operating in Zimbabwe and the consumers.
Zimbabwe’s Treasury has demanded businesses that charge for goods and services in forex to remit taxes in hard currency. Retailers sell to the RBZ at least 20 percent of domestic sales in forex at the ruling auction rate.
Authorities say the US dollar, which trades alongside the Zimbabwe dollar reintroduced in February 2019 after a 10-year hiatus, remains legal tender, although traders must observe set legal parameters for forex.
The Government recently committed to earmark a minimum of 15 percent of its total foreign currency denominated collections to supporting viability of the auction system, which has proved successful since its launch.
“Going forward, it is our desire and aspiration to continue to strengthen the auction system to ensure that it achieves greater heights to grow the Zimbabwean economy and reduce inflation.”
It was the bank’s vision, the central bank governor noted, to achieve and maintain pricing and financial sector stability, which briefly appeared to go off rails last year before the auction system stabilised things.
“The auction has helped the economy to grow. Domestic firms now contribute above 65 percent of the produce in the local market, thereby cutting imported products and creating employment,” Dr Mangudya said.
The RBZ Governor said the stability now prevailing in the economy and growing business confidence augured well for Zimbabwe’s economic growth target of 7,4 percent this year.