Mangudya plays down forex crisis

RESERVE Bank of Zimbabwe (RBZ) governor John Mangudya has down-played fears of an industrial bloodbath in the aftermath of government's move two weeks ago to effect far reaching reforms to stem the abuse of foreign currency obtained at the official auction system.

The reforms announced through Statutory Instrument (SI) 127 of 2021 triggered a wave of price hikes in both Zimbabwe and United States dollar terms, as terrified firms raced to protect their interests.

One of the biggest price changes was reported in liquefied gas, which rocketed 100% within hours of the announcement.

SI 127 of 2021 bars firms from using parallel market rates when pricing goods they would have purchased using forex obtained from the official auction system.

The SI also imposes heavy penalties on firms that refuse to trade in Zimbabwe dollars and punishes banks for not exercising due diligence when making applications to the auction system on behalf of clients.

Transgressors can be fined up to $1 million.

But Mangudya, who spoke exclusively to Standardbusiness, said there would be no casualties out of the reforms, except levelling the playing field.

"We don't believe that businesses will close," the RBZ boss said.

"With that SI all what we are doing is bringing equity and a level playing field in the market," Mangudya added, noting that there were already several supermarkets including the Zimbabwe Stock Exchange listed OK Zimbabwe Limited, which had been doing the right thing, but continued to operate.

"OK, TM (supermarkets) and the Spar (supermarkets) were using the official exchange rate, right?

"Now, given that they were using the official exchange rate it means that the other companies, who were using an exchange rate above $100:US$1 were doing so to get people to buy in foreign currency in their shops.

"So, it means that the OKs and TMs were suffering at the expense of the other guys, who increase the rate in trying to compete for foreign currency.

"So, this SI is levelling the playing field.

"There will be risk and reward. We can't have rent seeking behaviour where arbitrage is a business in Zimbabwe."

He spoke as the Confederation of Zimbabwe Industries (CZI) called on authorities to scrape the SI immediately.

The CZI said the fear among businesses was that while government's intentions were noble, the unintended consequences would be dire.

"The immediate impact of ap-plying the SI would be that US dollar prices will be hiked so as to result in the same Zimbabwe dollar price prevailing prior to the SI," CZI said.

This means an immediate spike in US dollar inflation, a component of our blended inflation rate," CZI said.

"Companies have been relying on local US dollar sales to generate the bulk of foreign currency used to sustain operations. "

"Use of the auction rate would result in consumers converting their US dollars to Zimbabwe dollars on the parallel market prior to purchasing, a practice already rampant outside the major retail chains such as Pick n Pay, OK and Bon Marche.

"This will deprive companies of what has become their main source of foreign currency.

"There is not likely to be a corresponding supply side increase in the amount of US dollars coming onto the auction, which will either result in an increase in the delays on disbursements, or a sharp increase in the rate.

"To date, our members still have their allocations on the auction pro-rated, thus a surge in demand on the auction is likely to exacerbate this problem and cause a slowdown in the economic recovery and job creation witnessed to date.

"Goods such as fuel are priced in USD and companies cannot bid for local payments at the auction," CZI added.