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No going back on de-dollarisation

by Staff reporter
02 Mar 2020 at 08:45hrs | Views
There has been a degree of confusion, some deliberately generated, and misunderstanding over the process of de-dollarisation.

The monetary and fiscal authorities, basically Reserve Bank of Zimbabwe Governor Dr John Mangudya and Finance and Economic Development Minister Prof Mthuli Ncube, have been very careful to follow the route of a process rather than go for a single "big bang" event.

Both have taken great pains recently to stress that it is a process and one that they expect to take five years to reach finality and for Zimbabwe to reach to position that most countries in the world take as normal, that all dealings are in the local currency and that foreign earnings and payments are automatically converted to local currency on deposit into a bank account.

So we saw last year the first steps being taken. The RTGS dollar became an actual currency, then this was designated as the Zimbabwe dollar and the only currency legally allowed for local transactions unless special permission was granted.

Exporters are permitted to retain a portion of their foreign earnings, rather than have the whole amount automatically converted to local currency on arrival. This was done to encourage exporters to export, by ensuring that when they needed to import raw materials or pay for foreign services they could do so immediately, although permission is still required to do this.

Unlike the position in the first couple of decades after independence, when the Zimbabwean authorities continued to enforce the rules established by the colonial regime after UDI, every Zimbabwean is entitled to maintain free funds in a specially protected foreign currency account or even in banknotes under their mattress. Free funds are generally Diaspora remittancess but there are other sources.

While retained export earnings are under direct or indirect RBZ control, in the sense that the exporter needs permission to spend them, and this  is generally only granted for uses connected with the exporting business, holders of free funds can do pretty much what they like with their money. But obviously the authorities would like to know how much cash there is under this classification, where it is and who controls it.

It is the fairly large sums in free funds, much of it in untraceable banknotes dished out originally at places like Western Union, that have forced the authorities to take de-dollarisation as a process rather than an event.

While Ian Smith, with his total disregard for human rights, his emergency powers and his ruthless enforcement forces, could ban possession of foreign banknotes and refuse to allow foreign currency accounts for free funds, a democratic Government would run into serious trouble if it took that route.

So the governor and minister are working on a different process, and one that is a lot more positive.

This started with fixing the fundamentals.

Prof Ncube became the first finance minister in 40 years to run, month after month, a primary budget surplus, meaning that he paid all Government bills from tax revenue with a bit left over that could go onto the capital account, where some borrowing was allowed.

That, in turn, allowed the governor to finally control money supply.

Meanwhile, the governor created the interbank foreign exchange market and has been steadily expanding it and making it more efficient.

This has seen more and more of the export earnings being sold in a free market, and an ever higher percentage of imports paid from that marketplace rather than by special allocation made by the RBZ.

Success was seen from around October when exchange rates basically stabilised and when Zimbabwe suddenly moved into the sunny days of exporting more than we import, a remarkable achievement, although one that too few amateur analysts have taken into account.

So we entered the new year with the quadruple achievement of a budget surplus, positive balance of payments, a remarkable degree of stability in exchange rates and monthly inflation falling very fast.

But many Zimbabweans, regrettably, while acknowledging this are still worried that something will go dramatically wrong and every gain will suddenly be wiped away.

And anyone who has lived in Zimbabwe through the last quarter of a century will understand why there is this fear.

This does not really worry the minister or the governor.

They both know what they have done, together and separately,  and are confident they can keep up the progress.

They have both made it clear that their route is to keep showing Zimbabweans that being a "normal" country is possible, can be maintained and is profitable.

They expect Zimbabweans to dump their fears and embrace the better alternative.

Meanwhile, in fine tuning, they are easing problems.

The minister, for example, has introduced a small range of very carefully costed subsidies, funded in the budget and linked to specific taxes.

And he has designed these subsidies to be effective by creating processes that make cheating impossible.

The governor has started processes to bring those free funds over which he has no control, into the formal economy where they can be properly used and managed.

This is why he is permitting licensing of some service stations to become forex stations, selling fuel imported with free funds. Those funds, as they are spent, move into his formal banking system and economy.

This is not re-dollarisation, bur a smart way of getting people with free funds to transfer those funds into the formal economy. And since the minister charges double duty on forex fuel, there will be limited demand for such stations. But for both process managers it is another step in accelerating de-dollarisation.

So what Zimbabweans need to realise is that the process of de-dollarisation is irreversible. Both the monetary and fiscal authorities see it as a process, not an event, they want to show Zimbabweans why it is a good idea.

Source - sundamail

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