'Black market rates to fall in medium-term'

Local research firm IH Securities sees parallel market rates falling in the medium term, as government implements fiscal discipline and moderating consumer demand.

Since the presentation of the 2019 National Budget last week, parallel market rates have largely remained unchanged around US$1 to $3,50 for electronic and mobile money transactions.

In its review of the 2019 National Budget statement, IH Securities said measures towards fiscal consolidation and macroeconomic stability, if implemented, would push parallel market rates lower.

"We believe that the parallel market will remain active, sustained by the natural dollarisation of the economy currently taking place," the research firm said.

"However, given higher retention rates for exporters, signs of improving discipline in the fiscus and moderating consumer demand (also considering a weaker agricultural season forecast in 2019) we foresee downward pressure on parallel market rates in the medium term, although they may remain elevated in the short-term."

These fiscal measures in the 2019 National Budget have largely been welcomed by stakeholders.

Among the measures are rationalising the public service wage bill, reducing foreign missions, increasing taxes, payment of certain duties in forex, and increasing rebates to different areas in the manufacturing sector to stimulate production.

"The MoF (Ministry of Finance) in our view has taken some pragmatic steps to begin to address these challenges; the recently introduced 2% money transfer tax has been ring-fenced specifically to pay down current domestic debt," IH Securities said.

"Simultaneously, a commitment has been made to close the tap on TB (Treasury Bills) issuance going forward and re-align to statutory limits. We believe that this will aid in containing the fiscal deficit; the reduction in money supply will indirectly moderate consumer demand resulting in some pull back in inflation and decelerating the levels of RTGS [real time gross settlement] available to chase foreign currency."

However, others have called on Treasury to urgently address the currency crisis which they say is at the heart of most economic challenges.

Former Finance minister Tendai Biti said currency was one of the five structural challenges in the economy.

"The budget is cowardly. It does not address five structural issues; 1) the currency of use and exchange rate, (2), financial mess and currency issue, (3), serious fiscal consolidation measures, (4), debt relief and political reform (5) the 2% tax. It plunges Zimbabwe into further economic turmoil," he said.

Biti said austerity meant serious expenditure retrenchment, not over taxing the population.

"Austerity is expenditure management. This budget actually increases expenditure from the 2018 budget. Huge and unnecessary allocations to defence and the President's Office. Budget deficit over $1,5 billion," he added.

The defence expenditure is estimated at $546,93 million, while the President's Office is expected to be $294,7 million for next year, with most of that going to employment costs.

"Revenues constitute 35% of the GDP (gross domestic product). So Zimbos (Zimbabweans) are already overtaxed. Imposing duty in foreign currency when people earn bond notes, increasing duty on fuel and other goods is wrong and terrible economics. So prices will shoot but incomes have been eroded by devaluation and inflation," Biti said.