Latest News Editor's Choice


Opinion / Columnist

Mangudya retains confidence at the Central Bank

05 Nov 2020 at 16:02hrs | Views
From the time Zimbabwe switched from inter-bank market for foreign currency to an auction system, which is largely driven by market. The idea is to determine market exchange rate. The bids come from users of foreign and they effectively represent effective demand. This further promotes transparency.

The challenge of the inter-bank which failed earlier this year could not yield anything as banks failed to trade amongst themselves due to counterparty limits.

The auction system has been established for price discovery, exchange rate has been established, it becomes the operational rate for transactions between auction dates. With the foreign exchange the new system also increased tobacco deliveries as the 50 percent payable in local auction rate and not fixed exchange rate.

The foreign exchange auction policy has yielded positive results to our ailing economy. Zimbabweans have witnessed price of goods remaining stable.

The main objective of introducing the Foreign exchange auction was price stability and exchange rate price discovery. Prices have been stable for the past three months or so, and hence optimism. That bids to the auction represents the desired exchange rates by business not RBZ. Secondly, all funds that come as diaspora remittance are considered as free funds which are kept by the recipients in perpetuity. Thirdly, that the country's forex requirement is around $80 Million per month, excluding fuel needs around $50 Million USD per month.

The auction has been allotting around $71 Million which is quite reasonable to boost production. The largest firms in this country eg Delta, Varun, Surface and National Foods require $ 500 000 per week. Other firms below that size need around $250 000 per week. The figures being tossed of USD 700 Million or more is likely to be fake news fuelled by those who are not informed. We need to deal with perceptions which should be managed. Let's look on the positive side of the policy introduction.

What we are witnessing the restoration of confidence to the key main economic players, both local and foreign investors which will result in the increase of Foreign Direct Investment (FDI). There has been major transparency and openness on the foreign exchange trade, with bidders and other players ensuring that the process remains transparent and fair. Prices and market rates have been stable for the past five to six months, and this will further strengthen RBZ capacity to increase demand and supply.

This is a framework which will have long-term benefits of improving the socio-economic developments in Zimbabwe. In the past foreign currency exchange dealers were seen to be fuelling price market rates, and further increase of price of goods and services, by allowing them to participate in the bidding process, this will reduce the chance of manipulating the process particularly on the pegging of the exchange rate. We have also witnessed the strengthening of the local currency through the introduction of the system. What needs to be done is to ensure there is increase in local production, and also at the same time ensuring participation of private sector in the re-building of our country. There is need to for private – public partnerships for rapid, inclusive and sustainable development.

Managing perceptions is also important in re-building our country. Government is encouraged to do a lot of work on public relations to improve on the dissemination of information, civic education, engaging stakeholders in building image on such programs. There is need to invest in information sector by ensuring that those responsible for disseminating information to the ordinary Zimbabweans are well equipped with enough resources to compile adequate data using empirical evidence research and strategic thinking around the current trajectory.

The main objective of introducing the Foreign exchange auction was price stability and exchange rate price discovery which has proved to be useful under the current economic experience. Prices have been stable for the past eight weeks or so, and hence optimism. That bids to the auction represents the desired exchange rates by business not RBZ. Forex transaction in the black market can never be USD $ 700 Million or more, because the country's exports are around USD $300 Million and that exporters are allowed to retain between 50 - 80 percent of their forex which they don't take to the black market. Secondly, all funds that come as diaspora remittance are considered as free funds which are kept by the recipients in perpetuity. Thirdly, that the country's forex requirement is around $80 Million per month, excluding fuel needs around $50 Million USD per month.

The auction has been allotting around $71 Million which is quite reasonable to boost production. The largest firms in this country eg Delta, Varun, Surface and National Foods require $ 500 000 per week. Other firms below that size need around $250 000 per week. The figures being tossed of USD 700 Million or more is likely to be fake news fuelled by those who are not informed. We need to deal with perceptions which should be managed. Let's look on the positive side of the policy introduction.

While the economic factors play a critical role in setting the exchange rate, in Zimbabwe the plethora of exchange rates cannot be explained by various factors. Previously, the exchange rate was driven more by speculation and expectations which resulted in forwarding price of goods and services. It was prudent to allow economic agents to determine the exchange rate in a transparent manner through the bidding process at the auction. Zimbabwe generates enough foreign imports requirements. The current notion is that the country need to focus on production for both domestic consumption as well as for export. Zimbabwe need to be self-sufficient so that we don't use foreign currency to import what we can produce.

Tinashe Eric Muzamhindo is the Country Director of Zimbabwe Institute of Strategic Thinking – ZIST and he is also a leading Project Management Consultant in Zimbabwe and can be contacted at executivedirectorzist@gmail.com


Source - Tinashe Eric Muzamhindo
All articles and letters published on Bulawayo24 have been independently written by members of Bulawayo24's community. The views of users published on Bulawayo24 are therefore their own and do not necessarily represent the views of Bulawayo24. Bulawayo24 editors also reserve the right to edit or delete any and all comments received.

Subscribe

Email: