Trimming forex premium, key to economic prospects

Zimbabwe’s economic prospects in 2021 will be partly determined by whether measures can be taken to remove the foreign currency premium still being paid by some importers, a leading economist has said.

In his economic outlook released last Friday, economist John Robertson, said the premium being paid by some importers that do not qualify or are failing to access adequate foreign currency from the auction system, adds to the operating costs and consumer prices.

Zimbabwe introduced the foreign currency auction trading system towards the end of June last year and has so far availed more than US$400 million to importers.

The auction system has been credited for bringing stability to the exchange rate, which seems to have settled between 81 and 82 to the US dollar since September 2020.

However, the parallel market rate, despite coming down from a premium of almost 300 percent in early June 2020, is still trading at a premium of more than 30 percent.

This, according to Robertson, will push up operating costs and consumer prices. While inflation has broadly slowed from a peak of 837 percent in July 2020, it closed the year 2020 still at a three-digit level of 348 percent.

Month-month inflation for December 2020 was even faster adding 1,07 percentage points on the November 2020 rate of 3,15 percent to close at 4,22 percent.

Robertson said although the monthly inflation is expected to stay at similar levels through 2021, it will be serious enough to weaken the exchange rate by another 40 percent when compounded through the coming 12 months.

Commenting on the agriculture sector, the economist expressed high hopes that in 2021, the country might become self-sufficient in staple food crops for the first time since the Land Reform Programme was launched in 1997.

“For Zimbabwe, the improved maize, wheat and soyabean harvests should reduce what would otherwise have been a sharply higher food import bill, as the worldwide Covid-19 outbreak impacted on many commodity prices in the early stages of the pandemic,” he said.

Food and beverage prices on the international markets moved up strongly after the April 2020 price dip.

Global food prices in December were the highest for any month in the last six years, according to the FAO Food Price Index.

“Food around the world was 7,5 percent pricier than the 2014-2016 average, on which the index baseline of 100 points is calculated.

“The December figure is the highest of any month in six years,” FAO said.

Away from exchange rate issues, Robertson was also critical of the Government’s slow pace in improving the ease of doing business.

“At present, the principal features of the investment policies show that government is reinforcing its commitment to build a more deeply entrenched Centrally Planned Economy.

“Even while claiming to be improving on indicators measured by the Ease of Doing Business index, the Government is adding to the number of permits, licences and levies that businesses have to apply for, renew or pay, just to retain the right to continue or start a business.”

According to Robertson, these procedures all add to effective taxation rates and worsen the already discouraging difficulties faced by those trying to invest in the country. -businessweekly.c.zw