A number of agreements were thrashed out yesterday between the Reserve Bank of Zimbabwe and leaders of the business sector to deal with what everyone agreed were unjustified jumps in black-market exchange rates and the consequent pricing in some areas.
In a statement after the meeting yesterday, RBZ Governor Dr John Mangudya said all parties underscored the need to maintain the macroeconomic stability momentum experienced in the last 12 months and based on economic fundamentals.
This has been based on balanced budgeting, control of money supply, total inflows of foreign currency exceeding total outflows, and the RBZ auction system to set exchange rates. The black-market rates were the result of behavioural factors, not economic factors since the fundamentals were still sound.
On its part, the RBZ undertook to regularly monitor monetary and foreign exchange developments to ensure the exchange rate remains stable, to continue using the auction system and to ensure that delays between successful bids and allotments of foreign currency do not recur.
Measures include tightening rates in the banking sector to discourage speculative borrowing and with banks undertaking to be more active in ensuring their customers do not cheat.
“The Reserve Bank of Zimbabwe, together with the Ministries of Finance and Economic Development and Industry and Commerce, met with leaders of the Zimbabwe business community on October 11, 2021, to deliberate and find solutions to the volatility of the parallel market exchange rates which adversely affects economic growth by creating business uncertainty as well as increasing domestic prices,” said Dr Mangudya.
“The parties unanimously agreed that while macroeconomic fundamentals were sound to support exchange rate stability, immediate measures were necessary to contain the movement of the parallel exchange rates.
“It was noted that the recent volatility in the parallel exchange rates was due to behavioural factors. In order to address these negative behavioural traits, it was agreed that a holistic and collaborative approach was required.”
As part of efforts to address the currency challenges, the Government affirmed its commitment to continue supporting the foreign exchange auction as a dependable and transparent source of foreign currency in the country.
The RBZ undertook to: continue tightening money supply under its conservative monetary targeting to ensure that money supply would not be a source of exchange rate destabilisation; accelerate implementation of special attractive money market instruments including exchange rate linked instruments as an alternative investment avenue for local currency to the holding of US dollars.
The central bank also proposed a review of bank policy rates to curb speculative borrowing, refining and streamlining the foreign exchange auction system to ensure that it continues to play its price discovery role in the foreign exchange market, and dealing with the funding backlog of foreign exchange allotments. Appropriate measures to ensure the foreign currency allotments backlog does not recur, will also be taken.
Dr Mangudya said the Bankers Association of Zimbabwe (BAZ) committed to ensuring all bids submitted to the foreign exchange auction are authentic, that due diligence on all their customers and applications for foreign exchange was done and avoiding facilitating black-market transactions.
BAZ also committed to improving efficiency in facilitating letters of credit, enhancing reporting of suspicious transactions, promptly implementing regulatory directives on freezing of bank accounts for participants in illicit foreign currency transactions, promoting confidence in the banking sector by clearing the foreign currency backlog promptly, and improving oversight on bank overdrafts to ensure that broad money is kept under check.
Retailers, who have dramatically increased prices in recent days, did not say if they will immediately reduce prices to the obtaining official rate. The retailers requested Government to deal with illegal foreign currency traders who mill outside and around shops and other trading areas, identifying and bringing to book funders of foreign currency traders, and dealing with informal traders operating without licences and sometimes outside legal or policy parameters.
Dr Mangudya added that the retailers noted the need to adhere to expected commitments to implementing provisions of Statutory Instrument 127 of 2021 with emphasis on three focus areas such as abuse of auction rules and funds from auction allotments, exchange rate manipulation or currency attacks, and non-compliance with the Bank Use Promotion Act.
SI 127 of 2021 mainly seeks to instill discipline in the foreign exchange market by imposing civil penalties on individuals and businesses who fail to adhere to the Government’s policy on foreign exchange.
Dr Mangudya said retailers were also advised that discounts could be extended to customers in the normal course of business as long as they are reasonable and in line with best practice, while entities using the official exchange in their pricing system might apply a tolerance premium of up to 10 percent in line with operations of bureaux de change. The manufacturing sector undertook to ensure responsible pricing.
Government and the RBZ pledged to continue supporting the manufacturing sector by levelling the playing field to ensure that exporters obtain a fair value of their export earnings. Confederation of Zimbabwe Retailers president Mr Denford Mutashu said the discussions were “fruitful” and all parties have committed to the “development of our economy”.
“Government and business are both working towards stabilising the exchange rate environment,” said Mr Mutashu.
Pan-African Chamber of Commerce board member Mr Langton Mabhanga said: “Discipline must go beyond talk shows. Abusers of the auction proceeds must be held accountable. To many, it’s more profitable to just access auction proceeds than to run actual business.
“We also need to take action on foreign businesses transacting in US dollars on a cash basis, yet they remit zero to Zimra. They top the allocation list yet are trading illicitly.
“The banks’ Know-Your-Customer must be alive. The quasi-licensing authorities must scrutinise businesses before issuing import permits, operating licences and foreigners coming in as expatriates. Allowing fair trading of the auction system and awarding forex to deserving recipients would curtail the exchange rate.”